Quote:
Originally Posted by JohnnyRenton
It would be interesting if someone with a background in economics could run a model on Moose's plan. When you consider the $1 billion initial investment, and the yearly operating costs (I believe someone said it was $200 million), you must need a truly staggering amount of growth and property value increase in order for it to work. Especially when you consider all the side effects that will be caused as real estate prices increase. I feel like the numbers would just be totally bonkers.
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Well, I'm not an economist, but here's my crack at this figure using some basic math and simple assumptions.
Assumptions:
-assume that only uplift created by the existence of the train will be utilized, not any other factors such as inflation, the creation of other industries in the area (eg: Tweed), etc.
-assume that the uplift will be a one time event. Therefore, assume that it is the inflation on the uplift which will fund the train on an ongoing basis.
-assume that uplift is supposed to be 'split' (ie: 50/50) between property owners and the train operators (as the Moose plan indicates it will do).
-assume that all property owners voluntarily contribute to the costs of the train
-assume an annual inflation rate of 2.5%.
-assume that we require $200M for annual operating costs.
-assume that we require $70M to service a $1B debt at 5% over 25 years.
Therefore: annual financial requirements to be provided by the uplift are $540M (($200M+$70M) / 0.5)). ((operating cost + debt servicing) / 'split')
Since annual uplift is 2.5% (inflation) on initial uplift at train implementation, this would mean initial uplift requirement is $21.6B ($540M / 0.025)
Now, Joseph Potvin has stated that they will only have stations where uplift is at least 25% of the property values. That means that property values in the 800m radius around all stations must total four times that amount (the uplift requirement) initially and five times that amount after the train service is implemented. That comes to $86.4B without the train and a total of $108B with the train in service if that assumption is correct. (A 25% increase on $86.4B comes to $108B, giving the required $21.6B uplift.)
So, to summarize:
An initial $86.4B in property value around stations, given an uplift in property values of 25% solely due to the train gives a one time increase in value of $21.6B which will provide $540M annually at a rate of inflation of 2.5%.
Now, at first glance that might actually seem achievable, it comes out to about $2B in initial property values around each station. However, one could easily challenge a number of these assumptions. For example it is highly unlikely that all property owners would contribute voluntarily. If only half were to contribute that would lead to double the initial value requirements (so $172.8B). It is also highly unlikely that all station locations would achieve a 25% uplift, especially those already on an existing transit line (eg: O-Train). If the average uplift is reduced to only 10% we would have to start with initial property values 2.5X as high ($216B). A 10% uplift with 50% contribution rate would lead to $432B required in initial property values.
And of course we have to remember that many of the stations will have little pre-existing value to start off with. Therefore there will be a requirement for dozens of (multi)Billion dollar developments to be undertaken simultaneously across the NCR in order to create that initial property value. (eg: 2000 houses each valued at $1M around a station, or a condo development of 4000 units each valued at $500K around another station, etc, etc.) Until such time as the development is created the train would operate at a deficit.
Note: to simplify the math I have not included the compounding effect of the rate of inflation.