Australia isn't ready for high-speed rail

With everything going on in the world it might not seem like the best time to talk about trains. But I've just come back from Japan – perhaps the best country in the world at everything train-related – and it appears that there's a renewed push in Australia to build our very own Shinkansen equivalent:

"It's the idea that has been revived and killed ahead of every election for four decades — but now a growing chorus is calling for government to 'bite the bullet' and invest in a very fast train connecting Sydney to Newcastle.

Experts have backed the view of former NSW Transport Minister David Elliott that a very fast train (VFT) – travelling up to 250km/h – between Sydney, The Central Coast and Newcastle would alleviate housing pressure in Sydney.

Prime Minister Anthony Albanese has a long record of supporting VFTs and high speed rail travelling at up to 350km/h, giving Australia its best shot at getting shovels in the ground after four decades."

Let me get this straight. Instead of simply building more houses where people want to live – for example, by easing zoning restrictions or getting rid of some of the 27 separate development approval stages – let's just sprawl out to Newcastle with high-speed fixed rail!

I'm only half kidding. If a lack of land were actually the issue in Sydney, then this would make some sense; in fact, there's evidence from Japan that opening a Shinkansen line "induced urban expansion increasing housing affordability", as you'd expect:

"We find that a Shinkansen connection in the previous year reduced land prices by 33% in the current year. Regressions using changes in land prices rather than log-levels show similar results. A decentralisation story would be consistent with the results we find: the Shinkansen helped Japanese cities to decentralise, which in return reduced the property prices in cities from what they otherwise might have been."

So, high-speed rail can be a solution to an overcrowded city. But Tokyo in 1963 – the year before the Tōkaidō line opened – had a population of around 19 million people, with a density of well over 5,000 people per square kilometre (today it's 6,225).

Today, greater Sydney's population density stands at 441 people per square kilometre, a far cry from Tokyo's dense urban area. Only the inner-most parts of Sydney, such as the City of Sydney LGA (8,176 people per square kilometre), would be comparable to Tokyo in the 1960s. And there just aren't enough people who live there: the population of the City of Sydney LGA is just 218,096, or something like 1% of 1960s Tokyo – certainly not enough to justify an expensive fixed rail line!

It's the lack of density in Australia's cities that makes high-speed rail between them uncompetitive, even as the population continues to increase: people are going to have to get into the central city somehow, so the time savings relative to travelling to the airport or simply driving the entire way may be negligible.

How Japan does trains

Just because something works in another country, doesn't mean we should transplant it to Australia. Japan was, and still is, a very different country to Australia, and many of those differences explain how it managed to make rail work. And it works well: unlike in Europe, many of Japan's Shinkansen lines are profitable, for a few reasons.

First, because of the huge upfront costs and fierce competition from air traffic, a culture of "rationalisation and efforts at cutting operating costs" was instilled in the railways that continues to this day.

Second, Japan's privatised railway companies are commercial real estate managers as much as they're railway operators, allowing them to cross-subsidise loss-making rail lines:

"Today, non-transportation revenues make up roughly a third of JR East's revenues, and nearly 60% at JR Kyushu. JR East operates shopping centres, restaurants, and hotels. Other large rail providers in the United States, United Kingdom, and France manage large real estate portfolios but for the most part do not directly operate businesses in the buildings they own."

Third, Japan's government took a huge hit when it privatised them by "putting a ¥14 trillion [A$140 billion] burden on taxpayers", and allowing tens of thousands of jobs to be cut. And not every line was successful; the more remote northern Hokkaido section, which is forced to stop at a number of stations with very few passengers, is still subsidised to this day. Recent efforts to upgrade the successful Tōkaidō line to a faster "magnetically levitated" version have come with huge subsidies, and are expected to transform a profitable line into a loss-maker because it will "mainly be used to sell Japanese technology abroad" (it also uses three to four times as much energy per person).

A study by Nanyang University in Singapore found that if another country (in this case, Vietnam) was to import the Japanese model, it would need to "consider connectivity to suburban areas around highly populated cities and have a diversified business plan with 32 to 54 per cent of profits coming from non-transport sectors such as hotel, real estate, and retail".

Basically, you can't just build a high-speed rail between a sprawled metropolis like Sydney and a regional centre like Newcastle without fixing the transport problems in Sydney first. And if the rail is to be government owned and operated, does that also mean government owned and operated hotel, real estate, and retail? Good luck with that.

A more recent example

Last year, Indonesia became the latest country to join the high-speed rail club with the completion of the Jakarta to Bandung "Whoosh" line. The first high-speed railway in the Southern Hemisphere, the train is also the second fastest in the world with a maximum speed of 350 km/h. It cut the travel time between the two cities from 3 hours to a more commutable 45 minutes, and is "China's signature Belt and Road Initiative project in Indonesia" (China provided 75% of the funding).

The Whoosh line covers 143 kilometres and connects Bandung, population of 2.5 million, with Jakarta – home to nearly 11 million people. For reference, the distance between Sydney and Newcastle is around 170km by road or rail. So other than the huge difference in populations and density, they're broadly comparable.

How is Whoosh working out for Indonesia? It seems to be reasonably popular with commuters, and given the short distance it doesn't face competition from air travel. But it's expensive:

"PT Kereta Cepat Indonesia China (KCIC), the consortium responsible for the operation of Whoosh, expects the service to face a deficit of Rp 3.15 trillion (US$200 million) in its first year of operation.

Analysts say the deficit may continue for decades and will likely affect the state-owned enterprises (SOEs) behind the project, particularly railway firm PT Kereta Api Indonesia (KAI), which holds the largest stake in the railway on the Indonesian side. This year, KCIC expects to book Rp 2 trillion in revenue, more than 95 percent of which is projected to come from ticket sales. However, it will have to spend Rp 3.32 trillion to operate the service and another Rp 1.84 trillion to pay down loan interest and meet its tax obligations."

So, annual operational costs alone are 66% greater than total revenue. Add in the large upfront capital costs and you would be hard pressed to make a business case for the line, given that the two cities were already serviced with 38 regular speed railway trips per day. People's time is worth a lot, as is improving housing affordability, but probably not even close to that much.

It won't help the environment

A recent article pushing high-speed rail in The Conversation spruiked the environmental side of things:

"The ultimate plan is for a high-speed rail network to connect Brisbane, Sydney, Canberra, Melbourne and regional communities across the east coast. The network would help Australia in its urgent task to reduce greenhouse gas emissions from transport. These continue to increase even as emissions from other sectors fall."

I'll just come out and say that high-speed rail in a low-density country like Australia is quite possibly one of the worst ways to reduce carbon emissions.

Take Sydney to Melbourne, the fifth most travelled air route in the world. An economy class seat on a flight from Sydney to Melbourne emits about 0.23 tonnes of carbon, which would cost around $5 to offset. Remember, Australia is trying to get to net zero emissions. In lieu of a price on carbon, the government could whack a tax on flights that compete with high-speed rail, and use the revenue on offsets to effectively make them net-zero. The externality is dealt with, and higher prices for airfares would improve a future business case for high-speed rail ever so slightly.

The unfortunate reality is that in this country, we have a tendency to build infrastructure that comes in late and over budget when compared to many Asian nations. For example, a simple bypass road in Western Australia was just completed after 8 years of work at a total cost that was 70% over budget. My suspicion is that any attempt to construct high-speed rail in Australia would end up looking like the Californian experience, rather than the Japanese one:

"The state was warned repeatedly that its plans were too complex. SNCF, the French national railroad, was among bullet train operators from Europe and Japan that came to California in the early 2000s with hopes of getting a contract to help develop the system.

The company's recommendations for a direct route out of Los Angeles and a focus on moving people between Los Angeles and San Francisco were cast aside, said Dan McNamara, a career project manager for SNCF.‌

The company‌ ‌pulled out in 2011.

'There were so many things that went wrong', Mr. McNamara said. 'SNCF was very angry. They told the state they were leaving for North Africa, which was less politically dysfunctional. They went to Morocco and helped them build a rail system'."

I can see it now. It starts with Sydney to Newcastle, but then as the line is inevitably extended north to Brisbane and south to Melbourne, with a spur out to Canberra, politicians start to lobby on behalf of their constituents to have their own stops, reducing the efficiency of the line until it's not even remotely competitive with other means of transport.

Only union labour will be allowed to work on the line, further driving up costs and construction times. While the high-speed rail is being constructed, the existing rail servicing its route will be slowed or cancelled entirely – for many years. Any analysis of costs and benefits would have to include the value of time lost during the construction phase, discounted at a reasonable interest rate. Those costs are incurred upfront and could be significant.

But that's if it ever gets off the ground. More likely, the Albanese government's High Speed Rail Authority was set up as a $500 million slush fund for well-connected upper middle class supporters, with no intention of ever actually doing anything meaningful. Just a series of high-speed rail "planning" studies that will say 'It's still too expensive, but we really like rail, so we better do another study to be sure'. No one ever pays it much attention, other than a fluff piece by The Conversation every couple of years, and no one will lose their job over the wasted millions.

Have a great day.