Guest Post: Turning passengers into shoppers – adopting a Japan-style public transport service model for Auckland

毎日が旅であり、旅を住みかとしている

Every day is a journey, and the journey itself is home – Matsuo Basho

Guest Post by Rob Mayo. 

Japan Rail concourse. Source: Rob Mayo

Transport service provision in Japan, along with retailing and consumer product design, have a long-standing reputation worldwide, for customer-centric service quality, efficiency, reliability, technology innovation and demand management.

There is a belief outside of Asia however, that Japan’s large, homogenous population and its social / business cultures are just too different and the customer service mindset of the Japanese too unique to be of real relevance in Europe, UK, the Middle East, North/South America and Oceania markets. Japan thus often gets overlooked by companies and organisations in these regions seeking to improve their service delivery and customer experience.

Auckland’s population of around 1.5 million in 2017 is projected to reach as high as 2.4 million before 2030. How the city manages its housing and its transport infrastructure, will determine how well it will cope with such a significant population increase in the coming decade. A change in the way of thinking is needed around how and when to build new and improved public transport-related services and how to fund both the building and the operating of those services. Its already becoming evident that the traditional methods of service funding are not sustainable as Auckland’s public transport network enters a period of rapid and prolonged growth.

Transport service providers in Japan have since the 1980s, via non-fare revenue sources, been able to fund continuous improvement in services to meet / grow user demand and maintain overall service profitability. How Japan does this, is relevant and applicable even in smaller-sized countries such as New Zealand.

Transport service provision in Japan – it’s all about convenience

Employees bow to welcome customers ahead of the day’s opening at an entrance to the Mitsukoshi department store, operated by Isetan Mitsukoshi Holdings Ltd., in the Nihonbashi district of Tokyo, Japan, on Monday, June 29, 2015. With Japan facing a labor shortage as the population ages — the jobless rate is at its lowest since the late 1990s and projected to fall further — Prime Minister Shinzo Abe wants to more than double productivity growth in the service sector by 2020. Photographer: Tomohiro Ohsumi/Bloomberg

Modern Japanese culture prioritises convenience (便利さ – benrisa) and the avoiding / mitigating of inconvenience (不便さ – fubensa). Japan as a country, often feels like one giant, well-run restaurant – pumping out consistently good service, with customers coming back again and again, recommending the place to everyone they meet.

For public transport operators in Japan, there are three key tenets of this convenience-oriented customer service culture which underpin continuous improvement in service delivery and revenue generation:

  • Believe in your product and sell it. People from all walks of life, are happy being sold to by those who they see as genuinely believing in their products and who demonstrate that they truly want to help. Customers will more often than not,purchase something from those people, just to show their appreciation.
  • Good spatial ambience transforms the routine into the memorable. Customer touch points that are clean, colourful, stock goods that anticipate needs and have good spatial design, immediately create a positive environment. Attention to detail in information, product choice and buying experience – for all purchasing environments (mortar and clicks), is paramount.
  • Appreciation is a powerful tool. “Thank you” – the phrase that generates loyalty, repeat business, word-of-mouth publicity and goodwill, especially among women customers. Recognise that women have a high sensitivity to hearing the words “thank you”, because as mothers, they have taught their children to say these words many times and consequently, they notice and appreciate when they receive a “thank you”. For Japan public transport providers, no matter how fast the technology change, customers feeling appreciated, having a memorable experience and being on the receiving end of kindness and enthusiasm, are the core planks of service delivery.
Ontakesan shops.Note the urban design layout – and the lack of cars. Source: Rob Mayo

Japanese people enjoy the world’s most convenience-oriented lifestyle and the services provided on public transport networks in Japan are an integral part of that. From a very early stage, transport operators recognised the significance of revenue derived from providing lifestyle convenience-oriented services throughout their networks.

Over the years, frequent, quality public transport services to dense, mixed-use, pedestrian- friendly housing and commercial developments, have allowed cities in Japan to achieve high rates of public transport usage and given citizens the freedom to view car ownership as a lifestyle choice rather than a daily necessity. Such PT-integrated communities – dense, walkable, mixed-use centers with a “morning-to-night vibrancy”, have turned transport service riders into loyal customers for a variety of non-fare service offerings (and vice versa), at all times of the day / evening during the week and on weekends.

For the communities that have over time developed along key public transport routes, the transport operator has been able to provide consistent, valued societal benefits – frequent, reliable weekday commuting services and frequent, reliable weekend access to recreational and social destinations…all while still being able to pursue profits from the ever-increasing numbers of people using public transport corridors on a daily basis.

The value of a property in Japan, increases the closer it is to a station or interchange, land use is mixed. Access to public transport is either on foot or by bike, car parking is non-existent at the majority of stations but bike parking is plentiful. The transit system has a high quality and frequency of service from early morning until late at night. Stations and interchanges are the centers of life for the surrounding communities.

A 90+ year history of convenience-based transport service provision

As detailed in a 2012 report for the US Journal of Transportation and Land Use by John Calimente on Tokyo’s rail-integrated communities, Tokyu Corporation was one of the first transport providers in Japan to build an on-going strong  financial foundation based on non-fare revenue activities. It was Tokyu Corporation that pioneered the creation of a convenience-oriented lifestyle for their customers.

Jiyugaoka Showa. Source: Rob Mayo

Established in 1922, Tokyu Corporation in 2017, is a large-scale public transport-based conglomerate of over 300 companies that employs more than 30,000 people, only a tenth of which work directly for Tokyu’s bus and rail services. Within ten years of its establishment in the 1920s, Tokyu had surrounded its transport service hubs with commercial and retail buildings and sold land near its intermediate stations to tertiary institutions, to create reliable residential, education and commercial access corridors.

Tokyu’s pioneering of this growth strategy in the 1920s – where fare and non-fare revenue activities live in a symbiotic relationship, is the same strategy and modus operandi that has been used progressively by all of the other major transport service companies in Japan over the ensuing fifty years.

The business activities of the various major public transport operators, focus on the development and maintenance of convenient, reliable services that are both fare and non-fare-based. This has served over the years, to make public transport deeply woven into the Japanese social and business fabrics and has underpinned strong economic and societal growth in both small and large cities.

Rather than relying on fare revenue and taxation, public transport service providers in Japan have actively sought and developed from an early stage in their respective histories, income from non-fare sources. Service diversification has been the key to the long-term  financial health of these providers.

With such business diversification (retail is a prime example), service ridership increases as passengers are attracted to these ‘complementary’ and ‘convenient’ service offerings. These non-fare services can in turn better ‘utilise’ the passenger base. Complementary service offerings such as small footprint station and service interchange retail, serve to smooth out passenger volume differences between peak and off peak services, including the directions the services are heading – inbound and/or outbound. The transport provider can more easily develop a market-oriented outlook based on the experience of running non-fare revenue services. Transport service operations costs are reduced by sharing those costs between fare and non-fare-based divisions. Business diversification is aimed strictly at increasing transport service ridership.

In 2017, there are over 1,000 bus, train and ferry operators in Japan with many electing not to receive subsidies from either local or central government, in order to innovate and diversify into a range of customer offerings along their corridors and at their respective transport interchange nodes, to keep services running.

Japan’s influence on transport service provision in Asia

As already described, since the 1920s, retail at stations and interchanges has been the bedrock of non-fare revenue generation for transport providers in Japan. Even in 2018 – in an age of convenience-oriented lifestyle with the Internet playing an ever-increasing role in online purchasing, transit network-based retail in Japan shows no sign at all of slowing down – the future is the present and the past.

The station retail culture that Japan pioneered and is still the world’s number 1 in, has over the last 20 years, become well-embedded in other parts of Asia.

A Watson’s Store located inside Kowloon Tong Station – Japan. Full integrated services include commercial and residential either inside or above a Japan Rail station is not uncommon. We would know these as Transit Orientated Developments. Source: Rob Mayo

An example of this is in Hong Kong where the MTR Corporation was one of the  first transport providers to successfully emulate the Japan station retail model – over 15 years ago. Subsidiary MTR Properties in 2016 generated NZ$664 million (HK$3.723 billion) from station retail and NZ$846 million (HK$4.741 billion) from property rental.

To be fair, MTR Corporation has been able to achieve such high levels of non-fare revenue partly because Hong Kong is a closed transport system – there are very few suburbs from which people can realistically commute to / from by car, so there are strong incentives for everyone within the Hong Kong territory, to use the public transport network. This feature, combined with other government regulations, has kept car ownership low in Hong Kong: 6 of every 100 vehicles are for personal use. Once buildings and retail are very well ‘patronised’ thus at station locations across the network.

Despite Hong Kong’s specific regulatory benefits to MTR Corporation, similar Japan-influenced station retail and amenities have sprung up in other countries in Asia where the government does not enshrine in law, any special dispensation to public transport service providers.

In major cities in Korea, mainland China, Singapore, Malaysia and Thailand, supermarkets and shopping centers are often directly connected (above, below or adjacent) to transit service nodes. Like Japan, these facilities have become well-embedded into the respective social / business fabrics and continue to be highly pro table revenue streams for the local transport providers.

It is not only the integrated supermarkets and shopping malls at transit network interchange points that make up the lion’s share of non-fare revenue in Japan. Small footprint convenience retail makes quite a significant bottom line contribution. Interestingly enough, in the drive throughout Asia to emulate Japan’s transit retail success, the significant revenue generated by well-designed and located small convenience retail outlets, seems to have been somewhat surprisingly, overlooked.

Why should Auckland adopt an Asia-style model for PT network service provision instead of adopting models from Australia, the UK, Europe and North America?

A NewDays Kiosk at a Japan Rail station.‘Source: JR East Water Business Co. Ltd.

One crucial reason is Auckland’s population demographic. In 2013, almost 1 in 4 people (23.1% or 307,233 people) living in the Auckland region identified with one or more Asian ethnic groups, compared with 1 in 5 people (18.9%) in 2006. By 2021, it is projected that 30% of Auckland’s population will be made up immigrants from countries in North, South East and South Asia. Currently, 12% of Auckland’s population are from North Asia and this will grow to around 20% by 2021. These customer segments have been brought up on a steady diet of everyday retail and service provision at stations and interchanges, in their respective countries of origin – countries where these services are well-woven into the social fabric.

This 12 / 23% of the population in 2017 and 20 / 30% of the population by 2021, are significant market segments for AT Metro non-fare revenue business – full of latent demand for transit retail services.

Not only the large number of Asia-origin people living in Auckland, equally significant are the substantial number of ‘kiwi millenials’ – of every race, who know and love the Japanese model of customer service, technology, food, drinks, culture and lifestyle. This global culture-savvy younger generation together with Asia-origin residents, will increase ridership on the AT Metro network when they are able to become shoppers at stations.

Modern day New Zealand lives in the ‘Asian Century’. Our young people across the board are very Asia-oriented on a number of levels. They are a broad spectrum demographic that’s hidden in plain sight, waiting to be catered to.

There is a reputational and a relevance risk to Auckland thus in continuing PT services as they are currently provided; as POTS – Plain Old Transport Services. Customers, including millenials now expect a broader range of services on the transport network and they expect services to be more life-relevant and responsive to their needs. For the foreseeable future, the pace at which urban culture and lifestyle is developing in Auckland is such that there is a risk of public transport service provision being left behind if it continues to provide POTS and not make a concerted move into proper convenience-based services as is the norm in Asia. As described above, Auckland’s population demographic is such that an Asia-style model of service fits the city better than models from other regions.

The deploying of Asia-style station-based convenience micro-retailing (including vending machines), together with the appropriate supporting smartphone apps, is the key next-step to generating non-fare revenue that will more than likely reach a level within 3-4 years, where it can make a sizeable contribution to the funding of public transport capital works and operational expenditure.

Following in the footsteps of transport operators in Japan, Auckland can develop / roll out a suite of non-fare revenue-generating lines of business 2018-2021 to build income, manage service demand and stay relevant to customer needs.


Specialised station vending machine and associated app. Source: JR East Water Business Co. Ltd

Auckland can and should:

  • Build a culture of PT customer needs anticipation – anticipating customer’s changing lifestyle (whole of life) needs through deep insight research into the relationship between transport service use and consumer purchasing behaviour as is done in Japan.
  • Tie patronage growth for bus, train and ferry services to station retail revenue growth.
  • Change customer beliefs on what public transport ‘services’ in Auckland are and should be – through the development of micro retail-oriented business initiatives as curated customer experiences.
  • Change the way service patronage growth is measured – by developing and running digital marketing and customer interaction initiatives that drive usage of the Auckland public transport network as a full end-to-end multi-modal service transfer system, analysing the effectiveness of those initiatives at each service interchange point.
  • Institute more a comprehensive benchmarking system for measuring customer service satisfaction.

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12 thoughts on “Guest Post: Turning passengers into shoppers – adopting a Japan-style public transport service model for Auckland

  1. The issue with auckland is Auckland Transport does not own surrounding land near the stations, even if they do, they are not authorised to develop the surrounding land.

    The Panuku and council may like to develop the land, but AT has no incentive to do any TOD nor try hard to improve its service.

    With a poor 20min off peak service, the patronage is going to be poor. It is not feasible for developer to develop the surrounding land.

    Thats why you can see the wasteland around the new Otahuhu train station.

    For it to work, AT has to own some land and can develop it and get rent.

    Ideally there should also be some internal competition between Heavy rail and Light rail, and between stations, lines, and suburbs.

    1. Exactly! Exactly! Exactly! Integrated ownership of the transit system and the sites served by it, and multiple such integrated enterprises competing with each other, is why Japan’s transit works so well. Of course Transit oriented development is going to occur, and be done competitively and attractively, under these conditions!

      It is so rare to encounter someone else who understands this!

      Anglo property rights combined with independent ownership of “transit oriented” sites; and “public” investment and subsidies to mass transit, is a classic case of rentier capitalism, zero-sum transfers of value, and economic injustice. The late great urban economist Colin Clark absolutely nailed it in a 1982 book when he said “…In net effect, the subsidies on rail and subway suburban transport are subsidies to the owners of certain types of land — for which there is no social justification…”

      Anthony Downs wrote the following in 2007:

      “…The cost of land poses a key dilemma for urban planners everywhere who want to concentrate jobs together so they can be best served by public transit. Such concentration raises the costs of land near centers; in fact, it would confer a monopoly advantage on landowners who owned such land and could exploit firms trying to locate there. Now firms want to locate elsewhere to cut their land costs.
      Planned concentration of jobs in a few centers is not consistent with private ownership and control of land. Some type of collective control over that land would be necessary to prevent monopolistic exploitation of land values. In theory, this could be done with high land taxes in such areas and special zoning rules. But adopting those devices is politically difficult in a free enterprise economy….
      “…A similar but less intensive dilemma concerns land near transit stops, where it would be most efficient to concentrate high-density housing and jobs. That also creates ownership monopolies over such land unless it is specially controlled or taxed. Yet focusing development near transit stops is a key to using more transit…”

      The Japanese institutional arrangements around transit beautifully invert these perverse mechanisms; and in fact they operate as a near-perfect substitute for the role of “sprawl” in Anglo urban economies. Competitive sprawl is what has disciplined land rent and averted monopolistic, extractive, predatory land-owner behaviour for decades; this beneficial effect is lost (and reversed) as soon as land-rationing planning policies are introduced. The evidence is incontrovertible, from Britain in the 1950’s, California in the 1970’s; Oregon in the 1980’s, our own cities from the 1990’s. It is simply too incredible to claim factors others than the land-rationing policies as being the coincidental cause of an explosion in land rent in each case.

      Ironically, the perverse consequences WITHIN urban land markets distorted by these policies, greatly undermine the claimed benefits of the land-rationing and prescriptive planning policies. The LSE’s Paul Cheshire (now emeritus) who is an expert in Britain’s distorted urban land markets, nails it when he says that urban property is turned into a speculative commodity like gold, swamping all the usual assumptions by economists about “the market allocating resources to best USE”. There is not a single case, for example, where greater compactness of a city / higher density has resulted in lower average commute times. Comparing like for like population levels, British and US cities have very similar average commute times; the fact that the British cities are around 5 times as dense on average, shows no benefit in the data. One of the reasons for this, is what Downs said above: potential residents and employers are “priced out” of the efficient locations; Japan’s cities have very prominent “articulated density” with residents and employers “priced in” by the competitive transit-property systems. British cities just have relentless crowding everywhere, weighted towards the “least unaffordable” (i.e. most inefficient) locations, and such low rates of redevelopment that the housing stock turnover cycle length is now estimated to be 1000 – 1600 years! In contrast, Japan’s housing-stock turnover cycle is below 40 years!

      The famous Newman and Kenworthy hypothesis about lower energy consumption with density, can be explained by the higher discretionary income in cities with low density. Contrary to the assumption of government urban planners, housing affordability is associated with low density and freedom to sprawl; every median-multiple-3 city is low density. Median-multiple 3 housing versus median-multiple 6 housing (or 8, or 10, or whatever) OBVIOUSLY leaves a LOT more discretionary income in the hands of households to spend on energy for all purposes.

      The price of urban land inside a growth boundary or similar constraint (which removes cheap rural land from “supply”) is “elastic to allowed density”. This is why a city with 5 times the density can have a median housing-unit price 3 times as high even though that housing unit is 1/5 the size of the median unity in a median-multiple-3 city. We see this dramatic explosion in land prices in Auckland, just as has occurred before in Britain, California and Oregon (and has become a latter-day global plague with the fad for saving the planet from urban sprawl). The evidence is much more stark when land values are considered rather than “housing unit prices”. In a single economic cycle, the land values can explode ahistorically by a factor of 20 to 30. The factor is now in the hundreds in Britain, compared to a “free to sprawl” counterfactual.

      I say “good luck” to anyone wanting to do nice attractive “T.O.D.” under these conditions of “land as gold” and mercenary self-interested behaviour by existing site owners under the systemic new powers handed to them by urban planners. .

      1. There is a lot of good thinking from Philip Hayward and I agreed with most of it.

        Something I wish to point out, although low rise sprawl is more affordable to the household, the council who maintain the services (water, power, roads) may not be able to afford it in long term.

        After decades, the road will be old and tired, the water pipe will be expensive to replace. The limited service also stops further intensification. The whole suburb will soon goes into vicious ghettoization phase. The rent drops, poor people moves in, crime goes up, valuation goes down, council rate goes down, local service goes down, etc.

        Another issue with low density suburbia is auto-dependent, which creates unwalkable environment and lack of urban vibrancy that is found in Japan.

        I believe the reason why higher density living is more expensive partly because people values the vibrancy and convenience and wish to pay more for it.

        The best model I believe is to have a hybrid of high density near transit, and lower density house further. In this way the resident has a choice and can pay for whatever he can afford. This will indirectly drives down prices as there will be more competition.

      2. Thanks, Kelvin. Again, I think you are seeing this issue exactly right. “…The best model I believe is to have a hybrid of high density near transit, and lower density house further…”

        That is what “articulated density” is. I believe it is important to avoid “breakdown congestion” in the road network. Even if congestion pricing is used, the actual capacity of the network relative to the users of it is very significant for urban economic efficiency. Effective non-automobile mode shares are only helped by articulated density. Cramming in more houses absolutely everywhere is always a net diseconomy because at the majority of locations, transit is not relevant. We should plan high density (and redevelopment to higher densities should always be very elastic) where there is frequent transit, but everywhere else might as well consist of single family homes with decent size sections. For the great majority of locations where people will use automobiles (or even two-wheeled vehicles) the important thing is for fast road travel to maximise economic demand-enabling, Not highways, by the way: just substantial arterial capacity and good grade separation at major intersections instead of traffic lights.

        I am familiar with density advocates objections to “urban area” density calculations that show New York urban area to have low density, even though it has super-dense Manhattan. These objections (which are correct) is that the “base” for calculations should be “people”, not “land area”. But they are not interested in replicating New York with its articulated density – high density in the right places and low density everywhere else – they want houses crammed in on every inch of surface space, they want congestion and they want driving to be made as inefficient as possible. Another thing they hate confronting, is that the world’s powerhouse urban economies actually have a high proportion of surface area dedicated to street space; they have just built “up” very strongly in the private space in between the streets. Our density advocates struggle to accept that Auckland has the lowest street space as a percentage of surface area, in the entire first world; it is down there with former USSR cities and third world dystopias; but if you suggest that Auckland needs more street space rather than less, and more building “up” instead of carpeting the surface with structures, they have a tantrum.

        One of the consequences of bloody-minded ideologically-driven “carpet development” is that all future re-development, and infrastructure renewal and maintenance, is greatly increased in inconvenience and cost. Our planners have been appallingly incompetent at protecting corridors and providing access to underground infrastructure as infill development has been happening. There was a significant “cost of infrastructure” report a couple of years ago that found that the assumption that infrastructure for increased urban intensities is “cheaper than infrastructure on greenfields” is not necessarily true. Virtually no underground infrastructure in Auckland has significant excess capacity to simply be tapped into; it needs digging up again and re-doing with larger pipes; and this is diabolically disruptive and costly. Going straight from low density to high-rise is probably efficient, but if you have already gone from low density to infilled medium density and you already lack street space and you have already covered your surface area with low-rise houses, you have left yourself with no good options.

        Some smart growth advocates I know of in the USA are coming around to the idea that the correct place for smart growth is on greenfields, with everything done properly “from scratch” this time. I even advocate for a properly-done new alternative CBD on greenfields, with transit-served sites owned by the transit enterprise itself, and no height limits, no NIMBYism, no Heritage protection, Underground infrastructure should have surplus capacity from the outset, and easy access to it for maintenance should be maximised. (I suggest putting it underneath cycle and pedestrian paths). Building “up” in the right places should be the means of achieving density, not minimising surface public space and street space.

        Collapsed-value low-density suburbs in US rust belt cities represent a massive redevelopment opportunity, and there are examples of “rising from the ashes”. If there is a cultural problem making crime intractable, that is not a consequence of low density. The inner cities had these problems too (and some still do).

        Last point: you say “… higher density living is more expensive partly because people values the vibrancy and convenience and wish to pay more for it…”

        Yes, and yet no city has expensive high density housing and cheap low density housing. Either everything is expensive, or nothing is, in relative terms. An extreme “opposite case” I already pointed out is in UK cities, where low density housing is so extremely under-supplied that it commands a massive price premium. No housing in the UK is cheap, not even their apartments. But the most expensive housing of all is the low density housing. Just some guesstimates to illustrate: in a US median-multiple-3 city, a small apartment in the CBD might be $80,000; an inner-suburb townhouse might be $150,000; a suburban McMansion might be $250,000; and a palatial home on 4 acres might be $1,000,000. In a comparable UK city, the inner city apartment is likely to be $600,000; the inner-suburb townhouse $800,000; the suburban McMansion $1,200,000; and the palatial home on 4 acres $30,000.000 (and only people like Elton John and Richard Brandson can afford them).

        Nothing actually affects prices more than “supply” and its responsiveness. This effect is far more powerful than the much-vaunted “amenity” effect. It is absurd to suggest that, say, Liverpool’s land values are dozens of times higher than Nashville’s and housing of all kinds is much more expensive (especially the lower density housing) “because of superior amenity”. You might as well argue that people in a country being gouged by an oligarchy in basic foodstuffs are actually paying for “higher-amenity bread” than people in a free market. I recommend my essay “The Power and Necessity of Consumer Surplus”.

      3. When looking from Auckland, note how narrow that street in the picture above is. That is, what, 8 metres in total? How many streets over here (outside the CBD) are that narrow?

        Even tiny local streets over here have 8 metres of roadway, plus berms and footpaths. The entire street corridor may be 20 m wide. So I find it quite surprising that Auckland has a low street space as a percentage of surface area. (on the other hand, the street grid is indeed very coarse)

        Also, I have a question about that observation of 40 years turnover. Is there any expectation at all that if a building is replaced, it must be replaced by exactly the same type of building? I guess not. Images from Asian cities (and to lesser degree European cities) always look a bit ‘messy’, which I think is just a consequence of being in a ‘living’ city. Over here, everything has to be ‘orderly’, i.e. entire neighbourhoods of very similar houses, and no possibility of change. Which I imagine greatly cripples the supply of housing in central areas.

      4. This is a really interesting read on housing in Japan:

        http://www.archdaily.com/450212/why-japan-is-crazy-about-housing

        No, there is glorious anarchy of housing styles! Brendon Harre always makes good points about the much more liberal “property rights” of Japanese.

        It is possible that it is Japan’s cultural worship of hygiene that makes them so fond of new houses versus anything that has already been lived in by anyone else. There are some astonishing statistics in that linked article; eg 87% of Japan’s home sales are new homes (compared with only 11–34% in Western countries).

        It is a mistake to overlook cultural factors when attempting to replicate one country’s policy “success” on some metrics, in another country. Actually, it is possible that Japan’s rate of turnover of houses is so rapid that it is wasteful of capital, rather than beneficial rapid redevelopment response to market signals.

        Another cultural factor is that the Japanese do not go in for any “additional private green space” dividend if this option is becoming more and more of a bargain due to demographic shrinkage. They just abandon the exurbs and the fringes and huddle closer in together in the city. Imagine what Kiwis would do if the value of urban land fell so far that 1/4 acre sections were <$200,000! Maybe the demographic collapse in Japan, and the desire for comforting crowds, go along together. But crowded urban conditions are not synonymous with social interaction. Crowds can be made up of loners.

  2. The big magical success ingredient in the Japanese transit institutional arrangements is not that the private transit enterprises “diversify into real estate” to prop up the public-transport side of their business. It is that the multiple competitors have ALWAYS seen ridership and “master planned community” with tenants and trip attractors, as part of the same competitive game. In fact Japanese cities grew this way right from Victorian times, with the railway enterprises doing the “sprawling” property development along newly-created subway and rail routes, and retaining ownership of the property.

    Continual redevelopment has been the norm so as to compete for tenants who are also ridership, and compete for trip attractor tenants or even get involved in retailing and other trip-attractor businesses. But the most beautiful feature of this system is that there has always been a competitive tension in RENTS. Every other “transit oriented planning” system in the world, delivers zero-sum capital gains to the independent owners of sites that benefit from transit “investments” and subsidies, whether they bother to develop to potential or not. The “spiky” urban rent curve always results in “pricing out” potential residents and trip-attractor tenants. The Japanese system is the only one that turns this wicked problem on its head.

    Tokyo in particular has the most amazing “articulated density” – tall buildings in the RIGHT places, around the transit hubs and stops. In some locations, multiple transit enterprises subways cross over each other and this is where the most building “up” and redevelopment has occurred. In the rest of the world with independent property owners reaping all the gains, the land rent is “spiky” but the actual height profile of the built area is not, with density perversely going “everywhere”, including where it is INEFFICIENT. Developers must profit on the actual construction, but the more “efficient” the site location, the higher the cost of carrying and financing the site, which squeezes the end margin for the capital outlay. Hence developers are just as likely to obtain less expensive sites at the “wrong” locations, because there is no incentive to them in the form of the gains that actually fall to incumbent site owners. The Japanese system reverses this.

    Hong Kong’s transit system is a monopoly, and its real estate holdings and landlording policy is to charge “rents” that follow the market. There is no competitive incentive to charge lower rents to gain tenants and hence ridership versus similar enterprises operating in the market. Libertarians who like to use HK as an example of low taxes, miss the point that a significant source of government revenue is property rents that are gougingly high, and that the transit system actually turns a profit because its ridership is largely captive. Transit advocates like to imagine that HK with its ultra-high density, is “efficient” and yet HK’s average one-way commute time is something like 55 minutes. Obviously the real estate and rental markets are so distorted that co-location efficiencies are non-existent (in contrast to ultra-sprawling US cities with average commute times less than half HK’s). Not only is HK’s transit ridership captive, they are captives to ultra-long commute distances (at a high ticket cost) as well.

    The world of urban policy is infested witrh cargo-cultist dreaming about replicating Japanese transit and TOD success, without anyone demonstrating that they have the slightest clue WHY it works so uniquely well. The independent owners of sites who reap the benefit of transit “investments” and subsidies will continue to do so, and the perverse incentives for actual redevelopment and intensification will persist. I have communicated these things to Phil Twyford long since, and even proposed that the solution in Auckland is for new developments on greenfields served by new rail routes, with the sites compulsorily acquired and ownership of them permanently vested in the transit system itself. The aim should be to create a new competitive CBD (including a better connection to the airport than the current CBD) and deliberately discipline the rent expectations of the current CBD and start making the site owners there work to create value for once, instead of being constantly on the receiving end of zero-sum gains.

    The optimal outcome would be to collapse the existing CBD’s value so thoroughly that the transit enterprise could scoop up site holdings there cheap and develop them properly – and from then on, the closed circle between value creation and value capture would be a virtuous one.

    Existing Japanese enterprises could even be invited in as partners in projects of this kind.

    One last note of realism: Auckland, even with 2.5 million people (one day) would still be a small city by Japanese standards, and Japan’s small cities are not afflicted with Walter-Mitty dreaming about copying Tokyo for everything. Mundane, un-sexy bus services are the realistic PT norm outside of the megalpolises, and low-rise suburbia is prevalent. Wellington is even worse than Auckland for “piddly little-man Walter Mitty syndrome” dreaming about mini-HK status. The people in an Asian city of half a million would laugh in derision at the thought. Nevertheless, I propose, in good faith, the least stupid possible path of emulation of the successful Japanese system.

      1. I absolutely agree that that is another factor that helps keep housing affordable in Japan. I am only focusing on the transit institutional arrangements because that is so hard to understand. I would include the freedom of local redevelopment in the category of good policies that nevertheless won’t work “on their own”. They “work” in Japan, in combination with the transit institutional arrangements AND the demographic collapse.

        I know that even while Japan has been collapsing demogaphically, density has been increasing in parts of Tokyo, but this density increase is a powerful demonstrator of the “pulling power” of suppliers of floor space in intense competition with each other for transit ridership. The danger always is that policy will be made (eg in NZ) on the basis of some element of the Japanese system, but which won’t work the same beneficial way in the absence of the other elements.

        Japan’s culture is also highly unusual in that they do not seem to be attracted by anything, even low cost, to private green (backyard) space of their own. As their demographic shrinkage has taken effect, they have “withdrawn” from exurban and fringe suburban locations leaving these like ghost towns. It may be that the aging population and the cultural background (loss of belief in the future) leads them to seek the solace of urban hustle and bustle. Western planners fervently like to imagine that their populations are going to behave in the same way, so as to justify their proscription of suburbia, but the Japanese remain unique. Humanity on the whole reveals a preference for private green space; the less there is of this, the more its price reveals a “shortage”. For example, in Britain, large sections are so rare that they command a price so high that only the 1% can afford them at all. The price “as a large section” is even higher than its price “as redevelopment potential”. The absolute opposite cultural preferences are what show up in Japan.

        This price distortion in British cities is my primary argument against the “YIMBY” movement that imagines that the existing density and the existing “revealed” shortage of private green space is no obstacle to “more density” as a “solution” to affordability. I think Auckland has gone past the point already where shortage of private green space is a factor in supply/demand disequilibria – let alone British cities that are twice as dense as Auckland (and London is 4 times as dense). The Herald reported a couple of years ago that the number of houses on the isthmus with sections of 1/4 acre or larger, was “7”. Seven. Every owner of these properties endures endless harrassment from developers wishing to acquire them. One still sees comments from “experts” about Auckland’s “attachment to the pavlova paradise dream”, which needs to be sacrificed for the good of the planet and “housing affordability”, but such comments are counter-reality nonsense. Auckland has been 3 decades already doing “intensification” completely the wrong way – covering the surface area higgledy-piggledy with low-rise infill housing everywhere regardless of locational efficiency; the complete opposite of “articulated density”. If it ain’t articulated density, it is a certainty that it is “net inefficient”. Auckland is already imploding under this inefficiency.

    1. Philip, I agree with a lot of what you’re saying about transit oriented development in Japan and I am pleased that you have done a lot of thinking on the subject.

      My post is actually not about replicating something from straight out of Tokyo and into Auckland. Having lived in the Tokyo/Yokohama area for many years, such copying into a Auckland environment would be a huge mistake.

      TOD and land use in Fukuoka is actially what Auckland needs to look at. There is much about how things are done in Fukuoka that is of relevance to Auckland’s transit network development…plus the fact that Fukuoka and Auckland are sister cities of long standing.

      My post is pointing out that a Japan model of development when applied thoughfully , will be of much benefit to Auckland. The Asian demographic of our city is such that we do need to look to that part of the world more now for ideas and opportunities to improve in what we’ve started.

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