Myth: More freeways will promote economic growth

Fact: In Melbourne, the suburbs with the most freeways are also the ones with the highest unemployment. The factors that make a city an attractive place to do business have little to do with how many freeways a city has and everything to do with livability factors, such as the availability of public transport.

Since the rise of economic rationalism, the economic argument for freeways has been heard more frequently than any other. This has provided the road lobby with new allies in the form of regional business groups and local MPs who connect freeways with economic growth and more jobs, seemingly as an article of faith. Rarely, if ever, is any evidence of the growth produced.

The Australian evidence is in fact very clear, and shows that the lobbyists are deceiving themselves. In the 1990s Melbourne had more freeways than any other Australian city, as well as the biggest arterial road network. Traffic congestion was lower than in Sydney and Brisbane. But Sydney and Brisbane grew economically during this period, while Melbourne stagnated. In more recent years the trends have reversed: while Melbourne’s freeway building slowed a little after CityLink opened in 2000, Sydney’s rate of freeway-building has ramped up beyond anywhere else in Australia. And sure enough, Melbourne’s economy grew rapidly in the 2000s while Sydney marked time.

Even closer to home:

  • Half of all Melbourne’s freeway system (by route length) is in the Western and North-Western suburbs, which contain only a quarter (23%) of Melbourne’s population.
  • Melbourne’s West has the highest jobless rate of any Melbourne region, and the highest long-term unemployment rate in Australia.
Western / North-
Western suburbs
Rest of
CityLink10 km9 km
Westgate/Princes West30 km 
Princes East 20 km
Western34 km 
Calder28 km 
Tullamarine13 km 
Hume10 km 
Western Ring38 km 
Monash 34 km
Eastern 18 km
EastLink 39 km
Frankston 7 km
Mornington Peninsula 27 km
Total163 km (51%)154 km (49%)
Regions with highest long term unemployment rates
in Australia
1. Western Melbourne11.3 %
2. Northern Melbourne8.7 %
3. Mid-West Sydney8.6 %
4. Gippsland8.5 %
5. Northern Adelaide8.0%
National average5.0 %

Furthermore, when the Western Ring Road opened in stages starting in 1992, average incomes in the area through which the road passes actually fell; meanwhile, incomes elsewhere (including in the outer east, which then had no freeways) increased.

Median weekly personal income
YearAll MelbourneWestern suburbsOuter
Change6.1% increase1.7% decrease4.7%

(Source: Australian Bureau of Statistics)

Every new batch of economic figures reaffirms this trend. The billion-dollar cost of the Western Ring Road in the 1990s was justified through the enormous economic benefits its supporters claimed the mere act of building the freeway would bring to the region. Yet, of the six Victorian municipalities that reported negative economic growth in the 1996-97 financial year, all but one were located along the Ring Road. The exception – the City of Greater Dandenong – is one of several municipalities in Melbourne’s outer east that lobbied for the Eastern Ring Road (now called Eastlink), citing the Western Ring Road as an example of the economic benefits that follow from freeway building!

This sorry tale is consistent with a British study which compared employment trends in areas served by freeways with areas that were not. No clear trend emerged: in fact, the areas without freeways showed slightly higher growth. Edinburgh, the UK city with the fastest rate of job growth, has no freeways and does not plan to build any; meanwhile freeway-rich cities like Glasgow and Birmingham decline.

It is also consistent with a 1997 study conducted for the World Bank, which found that among developed nations, those with the highest levels of car use also had below-average incomes per capita, and vice versa.

But that’s not all – even when judged by the road lobby’s own criteria, it is increasingly evident that many road projects in Australia aren’t actually effective in generating economic benefits sufficient to cover their cost.

Modelling, conducted by the Bureau of Transport and Regional Economics, shows that 25 per cent of the national highway system would not pass a cost-benefit analysis. It is even worse in regional Australia….

Although in principle, all the road funding entities do use cost-benefit analyses, either there are errors made in the analysis or it is not carried out very systematically, [economic consultant Henry Ergas] said….

Dr Ergas said the guidelines….allowed more scope for fudging the merits of a project than similar guidelines in Britain.

Pothole as pledges hit $15bn, The Australian, 29 October 2007

A good example is the East West Link, first proposed in the 2008 Eddington report Investing in Transport and subsequently pursued as the number one transport priority of the former Napthine Government. It was already evident at the time of the Eddington report that the Link didn’t stack up; its consultants found that the complete package of road and rail projects had benefits of $11.1 billion and costs of $15.0 billion (in present-value terms), while the rail projects alone had benefits equal to costs, at $7.9 billion. In what appears to be a half-hearted attempt to conceal the poor economics, no figures were stated for the road project alone. Simple subtraction, however, reveals costs of $7.1 billion and benefits no greater than $3.2 billion: in other words, the road would generate less than $1 for every $2 spent on it.

Thus, when the ‘secret’ business case for the East West Link was finally released to the Victorian public in late 2014, the benefit-cost ratio of 45 cents in the dollar should have come as no surprise. It was essentially the same as the Eddington report had (indirectly) concluded six years earlier (and far lower than for Eddington’s public transport recommendations)!

Of course, none of this stops road lobbyists ignoring all the evidence and lambasting public transport as a kind of cancer that destroys economies:

[In response to the 2006 Meeting Our Transport Challenges plan,] motoring lobbies were strangely muted. Perhaps they were relieved that previous proposals for 20 per cent of trips by public transport by 2020 were downgraded. Attempting to achieve that would have bankrupted the state and transformed the city into a decaying piece of antiquity, with clogged roads and disappearing jobs.

—Alan Moran, The Age, 24 May 2006

The freeway-growth case is based on the outdated theory that businesses locate to minimise transport costs. The theory might work for coal and iron ore export ports, but it is inadequate for modern urban economies, where factors like status, ‘brand image’ and the attractiveness of a city as a place to live dominate. New York, London and Brisbane continue to enjoy economic growth despite traffic congestion, while less congested cities with ample freeway systems lose out. Building freeways can actually be counterproductive, making the city less attractive, as can be seen in Detroit and Birmingham.

Transportation investment, where there is no viable demand for development, does not induce development.

—G. Lathrop and K. Cooke, Transportation Research Board, USA, 1990

[Speeding traffic will drive out other activities to the point where] they’ll be able to say about this place what can be said about so many cities, that not much happens there but boy, does the traffic move!

—A resident of Connecticut, US

[I]f we are in conditions where congestion is itself wasting economic resources, traffic restraint – clever traffic restraint – is good for the economy, not bad for it. This is primarily a theoretical argument, but we do have one set of crucial empirical evidence. It is now established that reducing traffic levels in town centres can improve the level of turnover and competitive position of those towns, provided this is done with style and ambition and favourable related policies including high quality public transport access.

—P.B. Goodwin, Professor of Transport Policy, University College London, 1997

Consumer expenditures on vehicles and fuel provide relatively little employment or business activity per dollar because they are capital intensive and most of their value is imported from other areas. One study found that each 1% of travel shifted from automobile to transit in San Antonio, Texas increases regional income about $2.9 million (5 cents per mile shifted), adding 226 regional jobs….Other studies find similar impacts.

—Victoria Transport Policy Institute (Canada), Evaluating Public Transit Benefits and Costs, 2004. More details and source citations can be found on the VTPI website.

These observations are reflected in annual studies that rank the world’s cities according to ‘liveability’. Melbourne’s on-off claim to be the world’s ‘most liveable city’ stems from rankings published by the Economist Intelligence Unit, which views Melbourne highly on account of its agreeable climate and low crime rate, and also relies on a fairly crude measure of transport quality. Only from 2011 to 2017 did the EIU actually award Melbourne first place outright. Before and since, it has shared top-three ranking with cities like Vancouver and Vienna, and more recently Osaka – whose transport policies all emphasise high-quality public transport over cars and freeways. Perhaps those who carry on about freeways producing economic growth should pay heed to the Economist‘s view – it is the flagship publication of economic rationalists, after all.

The other major ranking of liveable cities comes from the annual W.M. Mercer Quality of Life studies, which rate cities on a wide range of factors including climate, business environment, crime, public services, housing and leisure, and specifically consider factors such as public transport quality, air pollution and traffic congestion. Cities like Vancouver, Vienna and Zurich which top the EIU rankings also do well in the Mercer rankings. But Melbourne, despite outranking most other cities on all indicators other than transport, has never come first in the Mercer rankings. As of 2010 it ranked only 18th in the world, down from equal 12th in 2003. That ‘most liveable city’ tag really depends on who you listen to!

2010 Mercer Ranking of World’s Most Liveable

According to W. M. Mercer crime, public transport and school systems cause the largest differences in evaluating a city’s quality of life.

City of Vienna

Transport has a little bit of room to improve, and air quality is an area Melbourne could continue to focus on.

—Rob Knox (Mercer principal), commenting on the 2009 rankings

(In 2010 Mercer also began compiling an ‘eco-city’ index rating cities specifically on environmental factors, including air quality and traffic congestion. The top 20 eco-cities in 2010 included Perth, Zurich and Vancouver, but not Melbourne – it came equal 25th.)

Last but not least, a 2005 report by international transport expert Peter Newman compared Melbourne (then 14th on the Mercer charts) with the other 13 most liveable cities, and confirmed the general findings:

  • Even though Melbourne has more roads per person than the other 13 cities, this has not made the transport system more efficient or more economically competitive.
  • Melbourne fares worse than the other 13 cities on investment in, and overall quality of, public transport.

The report concluded that Melbourne was sliding in the liveability and economic stakes with its focus on roads at the expense of public transport, a finding confirmed by Mercer rankings in subsequent years. Meanwhile, other world cities have improved their economies by doing the exact reverse – focussing on public transport at the expense of roads. It is perhaps significant that in 2011 Melbourne gained EIU ‘most liveable city’ status just as it appeared to be taking the first steps toward doing the same (before the Baillieu Government gave priority to an east-west road link instead).

In short, trying to attract investment through freeways and dirty industries is a 1950s-style approach. Modern investors are attracted to livable cities, with clean air, attractive environments and educated workforces. Although freeway construction does create employment for road builders, most of the work is performed by machines. International reviews have found that public investment in hospitals, schools or public transport creates many more jobs than investing the same amount in roads.

Last modified: 15 August 2018