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Standing Committee on Infrastructure, Transport and Cities
Role of transport connectivity in stimulating development and economic activity

BELL, Mr Ian, Director, Financial-Architects.Asia Pty Ltd


CHAIR: I welcome a representative of Financial-Architects.Asia to provide evidence today. Although the committee does not require you to give evidence under oath, I advise you that this hearing is a legal proceeding of the parliament and therefore has the same standing as proceedings of the House. I invite you to make a brief opening statement for as long as you wish before we proceed to discussion.

Mr Bell : I am probably going to keep my opening comments and other comments a little bit narrow. Possibly in relation to the question of value capture I might be a little bit narrower in my reply and my perspective on it because of some of the things I have put in our submission. I am an adherent to following noted economists beforehand who have advised the Australian parliament—such as Dr Ken Henry. But I will start with a brief statement, if you do not mind, which will show the particular focus that I have when I attack these sorts of problems.

Firstly, transport connectivity is important, but fast transport connectivity is most important. Transport should be efficiently run, enable easy intermodal connections—car to rail, rail to light rail, rail to airports et cetera—plus be rationally priced and funded and, overall, be time economical. But I say our current main challenge is: Australia has a need for speed. I refer to three people, two of whom are actually still sitting in the room here. I also refer now to Dr Michelle Zeibots who teaches at UTS in Sydney. She teaches that slowing down rail where it is an alternative to roads ultimately leads to roads being slowed due to increased congestion. Ergo, speeding up rail has a beneficial effect, ultimately, on road travel speeds where they compete for origin-destination transit intervals. Speeding up rail, even more so than other forms of transport, also impacts property values because time is value for most people and permanency of embarkation-disembarkation points helps value uplift.

As Dr David Adams's work shows, increased transport speeds, especially with arterial rail, help level the land price curve between inner and outer city, making housing more affordable. The same applies potentially with the regions via intercity rail lines, and this improves land equity and keeps pressure off city prices. David's charts, which I have had the benefit of seeing beforehand and which are shown in his submission, could be modified to apply to high-speed rail, with average travel speeds higher at outer distances than inner ones due to wider station spacing intervals and running technology closer to its maximum speeds until the city approaches.

As my examples seek to illustrate—that is in the first, main submission—the Central Coast could come as close in time as Cronulla. Newcastle is a standout case—under a 30- to 40-minute transit, rather than currently close to three hours, or two hours by road, and I am reliably informed by Paul Hughes, who is a well-known executive in Newcastle, that for business executives the tendency is to use the F3—now called the M1—and book an overnight hotel room. So it would make a substantial difference to Newcastle. Melbourne decentralisation into northern Victoria could be completed. In other words, Whitlam's idea of decentralising to Albury-Wodonga could be fixed. He was before his time; we did not have high-speed rail then. The 200-kilometre linear city of South-East Queensland could be integrated and its transport challenges remedied. Those are not the only areas where these principles would apply. For instance, Mr Chair has mentioned Goulburn in his speeches. Who knows—maybe even Melbourne, Geelong, Adelaide, ultimately. You have to get the principles right; you have to get the framework right.

The effects would be like the Spiekermann and Wegener time-space transform maps, which are reproduced in our submission. I give credit to them. That is a brilliant way of illustrating things. The French ambassador has done similar sorts of things in terms of promoting French TGV high-speed rail out here in Australia. If we could redraw a map—take the example of Sydney—under the conditions of high-speed rail from Newcastle down to Canberra and show how shortened travel times would bring everything so much closer and, effectively, change the whole nature of how Sydney and its surrounding regions works, it would be an unbelievable transformation. As you have correctly identified, it would be a substantial transformation to the land market. East coast inter-city distances under a larger project would, effectively, be shrunk. This principle could ultimately be of benefit to more of Australia.

I mentioned Peter Thornton, who is sitting here. In the East coast very high speed train scoping study, he called for a vision and action plan for a new paradigm of development, mobility and transport connectivity. His essentials included political vision and leadership—Mr Alexander, you are doing it. They included long-term bipartisan political commitment. You have some of that, in terms of Mr Albanese wanting to put forward the High Speed Rail Planning Authority Bill, but he is wedded to the phase 2 study that he commissioned and was reported in 2013. David Adams has told you all sorts of drawbacks of that, and I could list for you so many more. The full participation of all governments was the third thing. Finally, the essentials included the collective will and skills of Australians. To that letter, some people would add cheap foreign labour. A historical example is the Snowy Mountains Scheme. It is our country's classic post-war exercise in immigration and benefitting the country with a major infrastructure project. I would also add, from my own perspective in banking, low interest rates and good construction cost control.

In terms of research interests, my other pet subject, apart from high-speed rail, is road pricing. Sensible road pricing would also help to improve infrastructure project rationality and eliminate bias. A bold but rational approach would be: start road pricing with network tolling in cities, on city motorways and then major arterials—we have GPS-type systems, transponders, et cetera; it is possible to do that nowadays—and then move later to interstate highways. But I say you would do these things as rail systems are improved. So you would make investments in improving rail systems, you would speed up rail and, at the same time, you would get over the—what do we call it?

Unidentified speaker : The invisible worm.

Mr Bell : The invisible worm—which, among other things, biases analysis and evaluation of road projects as against rail projects. Eventually, I suggest, and I derive this partly from thoughts that have been put forward by the Confederation of British industry, have a regulated asset-based approach backed by national transport funds whereby roads and rail can be treated on a level playing field. I applaud what David Adams said about our states—we have a minister for transport, a minister for roads, or a minister for roads and ports, and the two streams cause problems just like transport without land-use integration into analysis has caused problems. They are our fundamental problems.

A transport fund could be a national federal-state transport infrastructure fund framework under disciplined project evaluation guidelines. Whilst being a little difficult to specify and quite a bit of work to go through, it would be so much of an improvement on what we have had which has caused large mistakes. I can give you some background on that if you want to ask me questions on roads. That is the end of my initial statement.

Mr ZIMMERMAN: In relation to high-speed rail, what proportion of the projected costs could be generated from value capture?

Mr Bell : It is totally dependent on how you go about the value capture—but a significant component.

Mr ZIMMERMAN: Let me broaden the question. If you were designing a value-capture model, say, applicable in New South Wales, do you have a view on what the ideal structure for that model would be?

Mr Bell : I would go straight to the architecture. I would go to the architects. I would run an architecture competition. If you wanted to develop Goulburn or the Southern Highlands, I would go to the architects and I would get the master plan done first. Then I would look at what the economists and the land valuers advised us to do.

Mr ZIMMERMAN: Your proposition is that there needs to be a bespoke value-capture model for each individual project?

Mr Bell : Yes, almost—a lot of attention to the specifics of the situation. I say that having spent a little time in 2011, I think, with the phase 1 study into high-speed rail trying to encourage politicians and executives in Newcastle to put their foot forward to make a combined effort to influence government. I have had some personal experience on travelling on that rail line. That is a standout case where it needs speeding up. You have 2¾ to three hours on this 1880s rail system, built 125 years ago, yet we go into evaluations of rail projects and we expect them to pay off over 30 years. I mean, be real.

We can make major investments in improving these sorts of corridors—Queensland is another example—and they will pay off for long, long periods of time. They should never be evaluated on short periods of time. The use of seven per cent real discount rates means that you automatically cut out most of your long-term decision making, you automatically favour and bias the system towards projects that can pay their way in a 20- to 30-year time frame. For example, do a motorway and put a toll on it.

Mr ZIMMERMAN: I am struggling to get to the bottom of the purpose of this inquiry and you have canvassed broadly. Do you have anything you can add in terms of (1) the Commonwealth's role and (2) the most efficient and effective value-capture models?

Mr Bell : Coming from a banking background, the government decides what sort of value-capture model it wants to employ and then: what is a market response? I think the thing you have failed to recognise is that there is such uncertainty in terms of what will come from value uplifts. There is a very strong case and I think the chair has eloquently put that on a few occasions.

Mr ZIMMERMAN: You are a bit sceptical then about value capture?

Mr Bell : No, it is just that you go out with a toll road project nowadays. The traffic forecasts have been overstated with EastLink, Cross City Tunnel, Lane Cove Tunnel, Clem7 and Airport Link, and the financial markets say, 'We don't want to patronage risk.' Why would they want projected value-capture risk? They will do it for you. They will do it on some basis, but is that the most efficient way to fund things? I say the most efficient way to fund things is, yes, you can use the financial markets to a degree, but you have to put government entrepreneurial risk position-taking on the corridor, on the land, on the zoning and on the master planning to make it work most effectively. So it is a chicken and egg thing. I cannot answer your question without seeing the master plan. But I am an advocate of government borrowing for infrastructure. Infrastructure—and, particularly, transformational infrastructure—that changes the way in which our settlement pattern works in the country and solves some city based problems is a great case for the credit-ratings agencies to go 'tick'.

Mr VAN MANEN: I note in your submission, Mr Bell, you refer to Japan as a benchmark to which Australia should aspire. We were discussing that, briefly, outside of the hearing. I will ask you to speak to that but I want to add another bit to it. You touched on the issue of road pricing. The general perception out there in the community is that their fuel taxes and their rego pay for roads, so why should they be paying tolls?

Mr Bell : If you got the statistics and got them right you would find that there is a big shortfall.

Mr VAN MANEN: I accept that, but that is not the public's perception. Correct?

Mr Bell : No.

Mr VAN MANEN: What we are talking about, in the overall sense, is: how do we as governments raise more money to pay for stuff? Effectively, whichever way you cut the cake, it is an increased from of taxation. It is a matter of who pays for it and where it gets paid for and, ultimately, that price gets built into the economy. In the work that you do and others you work with, what work is being done to work out how we can take the public on that journey to, potentially, accept that there is going to be a higher cost for them to get the infrastructure they require, and they have to pay for it one way or another, when they already consider that they are paying for it?

Mr Bell : There has been a hiccup in the public sector in New South Wales. Charles Casuscelli chaired an inquiry into road-access pricing and the decision was taken not to release that to the public—prior to the last election—and it has not been released, since. He lost his seat at the last election, so, I guess, he was a little bit dirty about all that. I don't think many people knew what was going on there. But Transurban did take notice. Transurban have been trying to work out their own methods of suggesting ways to reform road pricing, because they have a very big vested interest, nowadays. They are almost like a de facto road authority for three of the states. They are trying to look ahead.

Mr VAN MANEN: I will use Queensland as an example but I do not suggest it is any different here in New South Wales. A lot of our toll points are on the road rather than on the exists off the road. I would have thought that if you were going to toll a piece of road you would toll the exist rather than the road itself. I will give you an example. I can drive from where I live to just south of the Gateway Bridge, in Brisbane—on a beautiful toll road most of the way—and I do not pay a single cent unless I go over the bridge. To me, it would be more sensible to toll the exists—at a lower cost, because you are going to pick up far more traffic movement tolling the various exists than you are tolling at points. Wouldn't that make it more attractive to people, the fact that they are paying a much lower toll, but you are picking up the revenue by getting more people through that tolling mechanism? I believe that model is used in Europe, in a number of instances.

Mr Bell : Historically, that has partly been for technology and cost reasons—where you can put the gantries and how many gantries you can afford to put up. But you have hit on a point that was, in part, within our confidential submission to the Casuscelli inquiry. We made a suggestion that there be a distance based toll, so if you travelled long distance you paid more for the length of the distance. But we also suggested in the Sydney case that that be zoned so that, as you approached the more congested sections in the inner city, the actual rate per kilometre was higher.

As part of that suggestion, we also suggested what we call a 'flag-fall fee; and a 'flag-drop fee'. So, as you entered the motorway and as you exited the motorway, there were additional fees. There was a combination of factors that went to your total toll payment calculation. They have picked up the question of the flag-fall for the WestConnex project, if you look at the detail of it. So we suggested a much more complex—you could call it more complex—system, but it was one that was more oriented towards the fundamentals of how the cost factors work in building those motorways in a city area nowadays.

Mr VAN MANEN: But it is not only the building of the motorway; you have the long-term maintenance cost as well. So, in the event that you move to a road-user pricing model, whether it is cents per kilometre or whatever the model would be, would there not then be an argument to remove fuel taxes or registration as an offset to that cost?

Mr Bell : If you wait long enough it will be removed anyway, because we are moving to vehicles that do not use fuel. The federal government has a major problem looking 10 years ahead. They are going to have to do it. They are going to have to come up with a new road pricing scheme.

CHAIR: Very briefly on that, going back to the Macquarie Park mall and the exit established with an exit toll, a lot of the toll roads have been designed to make you enter and you pay a big fee for a small benefit possibly; it does not differentiate. It would strike me that there has been incredibly increased traffic on the M2 with that exit made and that exit toll, and yet none of the value capture that mall felt fit to spend an extra $500 million on phase 5 or whatever it is of their development. No value capture was taken to fund what actually stimulated that investment. It seems strange.

Mr Bell : I do not have much detail on the specifics of Macquarie Centre. But, as far as the owners of the motorway are concerned, they were.

CHAIR: To go onto this topic of projecting possible revenues through value capture, can we just walk through some stages of where revenues might start to accumulate. Would you agree that, when a project is announced, the smart money is out there on the doorstep buying up land at that moment?

Mr Bell : Absolutely.

CHAIR: Huge stimulus.

Mr Bell : Yes.

CHAIR: Nothing is happening the day before—

Mr Bell : Before it is announced, because word does get out.

CHAIR: If there is any insider knowledge, they are out there and they are buying it.

Mr Bell : That is right.

CHAIR: The farmer, in the case of high-speed rail, might not be aware and might be selling a goldmine because—

Mr Bell : All sorts of possibilities

CHAIR: he is not aware, or she is not aware. There is capital gains tax that is taken on such properties. There is then another stimulus with the speculation of zoning changes. Would you agree?

Mr Bell : Yes.

CHAIR: And more land bought, more prices going up?

Mr Bell : Yes.

CHAIR: There is the moment when construction of such an issue begins, a project begins. The breaking of ground for high-speed rail would bring another generation of investor in, and more revenues.

Mr Bell : They are all events that lead to a great level of certainty out there in the marketplace and they have all got an increment to it.

CHAIR: With most building contracts, construction begins at the end of the first month and you are given another month to then make the first payment. So we are yet to make the first payment. There is the actual zoning that does happen.

Mr Bell : Yes.

CHAIR: And now we have a clear idea, and there are more revenues. You would agree?

Mr Bell : Yes.

CHAIR: And then the operation actually commences and, wow! We are seeing this! And there is even more; the stragglers are coming on board. Right?

Mr Bell : Yes. All incremental, except that you can overlay other factors on that.

CHAIR: If we talked about the Newcastle to Sydney rail—it is 125 years old?

Mr Bell : Yes.

CHAIR: And, if you said, 'We could look at paying for this high-speed rail more like over a 30-year period'—or major infrastructure projects over 30 years.

Mr Bell : It makes it short and it makes the cost justification harder.

CHAIR: Thirty years is a relatively short period of time.

Mr Bell : Yes, it is a relatively short period of time. There are also generational issues there.

CHAIR: With higher speed rail going between Sydney and Melbourne and servicing maybe six or seven regional cities, do you think I would be overly optimistic if I said that 20,000 people might move into that entire region—those six or seven cities between Sydney and Melbourne—in a year? Do you think that would be an outlandish number?

Mr Bell : Again, it depends on the level of certainty that the community sees in the project.

CHAIR: This is once it is up and running. Do you think you would get 20,000 a year?

Mr Bell : You can get major shifts. I have not attempted to quantify that in any time frame.

CHAIR: If there were five, that would be 4,000 in each city. It is a very small number, I think, when you are looking at our housing demand. I think Sydney and Melbourne take in about 100,000 each. If we got half of them, we would get 50,000 a year.

Mr Bell : Yes.

CHAIR: But, if we go back to saying 20,000 a year, which I would hope you would agree is a terribly conservative number.

Mr Bell : It can be, given the right circumstances, given the right planning—I mean this is major transformation—

CHAIR: High-speed rail, going to the southern highlands, going to Goulburn, going to Shepparton.

Mr Bell : I think the Japanese have got statistics on their experience. You could use that as a guide, if nothing else.

CHAIR: I would think most people would agree that 20,000 would be a very minor, very conservative, number. And, given that over each successive year you are growing off a bigger base, that number could probably go up. But, even if you left it at 20,000 a year for 30 years, that is 600,000.

Mr Bell : Yes.

CHAIR: If we looked at the land values, which we looked at earlier in the year, the land values would be going up enormously; $1 million for a block of land that was worth virtually $250 beforehand. If you are capturing that 100,000 again, just a small 10 per cent of that up the—

Mr Bell : I would be more conservative in terms of how much you can envisage things moving towards equilibrium in a given period of time. That is so dependent on the master plan.

CHAIR: That $1 million dollars for a lot is probably two-thirds of the current price of Sydney land that is 30 or so minutes from that. It is still giving quite a margin.

Mr Bell : Yes, except there—

CHAIR: The point I am getting to is that 600,000 would raise in value capture $60 billion, which more than pays for the high speed rail. If you are looking at trying to project revenues from value capture as a result of high-speed rail—the most conservative possible numbers you can think of—it walks it in.

Mr Bell : They would be justifiable under many scenarios, but not necessarily bankable. That is my point.

Mr VAN MANEN: Because the experience in Japan is that those cities that people have moved to—they have moved out of Tokyo, further out, but they can still travel into Tokyo in a reasonable period of time on the high-speed rail—the price of property in those cities is nowhere near what it still is in Tokyo; is it?

Mr Bell : No.

Mr VAN MANEN: Even though they have had high-speed rail for 30 or 40 years.

Mr Bell : But it does provide all sorts of benefits.

CHAIR: Too often we talk about being able to commute to Sydney or commute to Melbourne. In a broader strategy of sustainable cities, these cities serviced by high-speed rail would not just be dormitories for commuters; they would be cities in their own right, with their own industries, their own businesses, their own purpose; even government agencies locating there to give a better quality of life to people employed in those agencies. They would have shorter commute times and much lower cost housing.

Mr Bell : Absolutely why I mentioned the master plan. You are adding missing ingredients that Gough Whitlam would perhaps like to have had!

CHAIR: So the concept, while well-intentioned but not thoroughly thought through—like many Labor policies; sorry, I did not mean to say that!—of moving to Orange, Bathurst and Albury may have been admirable, but because there was no fast-rail linkage, it was stillborn, to some extent. But if that initiative had been along a high-speed rail, linking out to bigger cities, and giving each of those cities access to those major cities—not the cost of them but access; the benefit but not the cost—that would have most likely enhanced the chances of success.

Mr Bell : Yes, I think so. Albury-Wodonga—its distance from Melbourne is a case in point; and Seymour, that sort of area. And the Southern Highlands to the city—there is already an executive belt there in the Southern Highlands, in terms of holiday homes and weekenders and Pitt Street farmers. You imagine if they could use high-speed rail to get the city. A lot of them might move out of the eastern suburbs or the lower North Shore.

Mr VAN MANEN: I want to take high-speed rail in a slightly different direction. We talked a lot about high-speed rail in relation to commuter travel. What about the value of not necessarily high-speed rail but higher speed rail for freight?

Mr Bell : Okay. Different subject. My orientation is towards high-speed rail, and I am saying we have waited so long that we should go for the highest speed rail—because we have got longer distances—between Sydney and Melbourne, and between Sydney and Brisbane—than have worked successfully in places like Europe and Japan. So I am saying, go for the highest speed rail. The highest speed rail—

Mr VAN MANEN: So that is necessarily passenger rail.

Mr Bell : Yes, and I think—well, I have spent a bit of time, as the submission probably shows, talking to the Japanese. The Japanese have the safest system, and they now have the fastest system. It is not the wheel-on-rails version I am talking about there; I am talking about their superconducting maglev as the fastest system. Because we have waited so long, if you are going to devise a corridor and you want the fastest system, then you have got to draw the straightest lines. Once you do that, safety-wise it is difficult to mix the Japanese type-approach with freight. It is only marginal—

Mr VAN MANEN: But we are building an inland freight corridor.

Mr Bell : Are we?

Mr VAN MANEN: Well, there is a study going on for it at least. I think there is a fair corridor there already. Mr Bell: Yes, it still has got some challenges, I would say. But the interesting challenge, I think, would be if Malcolm Turnbull was to say, 'let's go ahead and build east coast high-speed rail'. You have got all the existing old railway line all the way up the eastern coast, so does that damage the coast for inland rail? Maybe. It certainly changes the ball game. One of the things that I would do—and this phase 2 study did not do that at all—is look at what other impacts having that high-speed rail corridor—and starting to plan it out and design it; having a workable arrangement—would create. And one of the things it would create is it would speed up your freight. Even though it might not totally modernise your freight, it would speed up your freight. It gives them more access. The other thing that will do is it cuts out future upgrades that will otherwise be necessary to the Hume Highway, the Pacific Highway, the Pacific Motorway, the Sunshine Motorway, even the Bruce Highway et cetera. It depends on how far you take it.

So it missed a number of elements. There are a number of elements that should have been looked at. There should been a 100-year study, maybe a 70-year study. In India, the Japanese are lending for 50 years for high-speed rail. In Indonesia, the Chinese are lending for 40 years. The Australian government could plan this over 70 years, at least. There are significant changes in what you would otherwise do if you look at a 70-year time frame. All of that was missing from the study.

CHAIR: Are you saying that the federal government, because of their capacity to borrow at very low interest rates over long periods of time, could actually act as a bank for various interested parties wanting to privately develop?

Mr Bell : I would not say you would act as a bank for them because you have to be very careful about the commercial interests of the private sector.

CHAIR: As a facilitator to getting funds?

Mr Bell : Yes. I would be inclined to look at some coinvestment so that you always knew what was going on with their syndicates, and I would look at some credit upgrades.

CHAIR: With your banking hat on, when you have a group who say they can look at funding the entirety of the cost through the uplifted value of land they are buying, would it be a wise thing for the governments—federal and state—to quarantine the capital gains taxes and stamp duties that are coming out of these developments as they happen, to hold them in reserve to ensure that the project is completed?

Mr Bell : You are spot on. Absolutely. What you will be offered by those organisations—there will be a list of conditions. There is no doubt that in terms of financial feasibility and running risk analyses there will be conditions, and in some instances those conditions could come back and bite you unless you have made proper provision for them.

CHAIR: It is literally a way of paying a premium to gain insurance over the project happening at no cost.

Mr Bell : And ensuring there are no hiccups when the project goes ahead. In California, for instance, a project goes ahead and suddenly there are question marks thrown up over where it should be.

CHAIR: Thank you, Mr Bell, for your evidence today. We have gone a little over time, but that is because your evidence has been so compelling. The secretariat will send you a draft transcript of proceedings so that requests can be made to correct any errors of transcription. Thank you again.