Are infrastructure costs higher on the fringe?

Capital costs per dwelling of infrastructure provision - inner suburbs vs outer suburbs (from Trubka et al)

The exhibit above purports to show that the cost of infrastructure associated with building a new dwelling within 10 km of the CBD of a city like Melbourne is, on average, $50,503. In contrast, it costs $136,401 to provide infrastructure for an outer suburban dwelling i.e. located more than 40 km from the CBD. That’s a huge difference: $85,538 per dwelling.

The figures come from a 2007 report, Assessing the costs of alternative development paths in Australian cities, written by three Curtin University academics, Roman Trubka, Peter Newman and Darren Bilsborough. I’ve mentioned this report before, but that was primarily in the context of The Age and some public sector agencies tending to conflate economic costs with infrastructure outlays (they’re not the same!).

The figures above however are solely infrastructure outlays (not economic costs). Judging by the extent to which Trubka et al’s report is cited by government agencies, there appears to be strong demand for this type of information. It seems, however, that these are the only numbers on this topic around. That’s unfortunate because they have some very serious shortcomings as an indicator of the relative cost of providing infrastructure in inner and outer locations.

The key deficiencies are they’re old; they don’t relate to Melbourne; and they’re not transparent. Trubka et al sourced them from a 2001 report, Future Perth, prepared by the WA Planning Commission to assess infrastructure costs in Perth. Future Perth didn’t calculate its estimates from first principles but rather surveyed 22 earlier studies, some dating from as far back as 1972 and some relating to costs in the USA and Canada.

Future Perth is a working paper and hasn’t been published – hence the rigour of its methodology and those of the 22 studies it drew from hasn’t been tested. Unfortunately, Trubka et al provide scant explanation of their infrastructure estimates, relying instead on a reference to Future Perth.

I can’t say for sure the Trubka et al estimates are wrong, but I can say they’re unlikely to be right. I can also say they’re far too flaky to be relied upon to guide significant policy or investment decisions here in Melbourne. There’s clearly a demand for this sort of information so it would be sensible for the State Government to undertake its own rigorous and up-to-date assessment of the costs of metropolitan infrastructure provision.

Although not as decisive as the shortcomings discussed above, I also have some issues with how Trubka et al have set up their cost comparison. Actually, because the report doesn’t elaborate much on the various infrastructure items, I’ll treat these as questions, or areas that need clarification.

The first one is the authors have counted the capital cost of roads but not of public transport enhancements – that seems a startling omission and one biased toward the inner city/inner suburbs option (it also suggests the operating costs to government of the two options might differ significantly too).

Second, the cost of local roads within developments appears to be included in the estimates. Since these costs are routinely paid by developers and passed on to buyers, the point of counting them is what exactly? (if the point is affordability then say so, but then any sensible discussion would have to include non-infrastructure components like the price of land as well).

Third, the claim that it costs almost nine times as much to provide education facilities in the outer suburbs makes me wonder if the authors are using different demographic profiles for the two locations! Further, they’re implicitly assuming there’s spare capacity in inner suburban schools, so they clearly haven’t seen all those temporary classrooms in inner Melbourne. Since it costs at least as much to build an additional permanent classroom in inner areas as it does on a greenfield site (not to mention the proportionately greater loss of open space in the former), I’d like to know how they’ve arrived at their estimated costs. Nor does it seem like they’re aware of the number of inner suburban high schools that have closed.

Fourth, the differences in the other costs like electricity, water and sewerage are also presumably premised mainly on the idea that there’s spare capacity available for ‘free’, but if so that’s a misnomer. If inner city/inner suburban growth continues, capacity enhancements will ultimately have to be paid for. Every dwelling that consumes ‘spare’ capacity brings that day forward.

Fifth, at least in Melbourne’s case, there’s limited drainage capacity in inner areas, as I’ve mentioned before. The Trubka study doesn’t mention drainage and doesn’t say why it doesn’t. If that’s because this cost tends to be fully paid by developers (e.g. by building retention tanks in developments) then fine, but that begs my second question above.

I don’t know what the relative capital cost of providing infrastructure in inner and outer areas of Melbourne is but, disappointingly, it doesn’t appear as if the bureacracy has much of an idea either. However I think there’re good reasons to suspect the gap is nowhere near as large as Trubka et al think it is. That’s a matter I’ll look at next time (and I’ll try to look at Trubka et al’s estimation of economic costs another time too).

3 Comments on “Are infrastructure costs higher on the fringe?”

  1. Johnyboy says:

    I think that the academics have bitten off more then they can chew. Why? There are too many factors when working these things out. The first thing is that the infracture in the inner city will have to be replace eventually. I know that under the city there is huge expenses. I doubt that over the long term that is the case. Though they might have uncovered something else like transfer pricing.

  2. […] and development issues with a particular focus on Melbourne, Australia Are infrastructure costs higher on the fringe? […]

  3. Guy Gibson says:

    Great post Alan. Sinclair Knight did a major study on comparative costs of servicing development in different locations in SEQ in 1993, and one of their conclusions was that many of the site infrastructure costs were dependent upon site characteristics, and that consequently, it is not appropriate to extarpolate generalised conclusions to cover wider areas of the region. The US research on the subject (including the oft-cited ‘Costs of Sprawl’) was thoroughly reviewed in Robert Bruegmann’s book: Sprawl: A Compact History. He concluded that that was a ‘great deal of reason to be dubious’.

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