Some Examples of Falling Costs

Question. Are there any historical examples of construction costs actually falling in a city, rather than just rising slower than elsewhere?

Answer. Yes! Not many, though.

I know of three examples, but the first is fairly irrelevant and is included here for completeness.

Example 1. London’s District line, going by Wikipedia data, cost 3 million pounds, which in today’s money translates to $90 million per kilometer. This was astonishingly expensive, and even today London Underground extensions, as opposed to Crossrail, cost less than that relative to British GDP per capita. The reason for the high cost: the line was built cut-and-cover without any street to go under, so it needed to carve a new right-of-way through Kensington, demolishing houses in an expensive area. No further cut-and-cover lines were built. Costs fell to about $30 million per kilometer with the invention of deep-bore tunneling a generation later; today, bored tunnel costs more than cut-and-cover, but with the technology of the late 19th and early 20th century, this was not the case.

Example 2. Milan built its first two lines very cheaply; in today’s money, M1 cost around $50 million per kilometer. It was built using a method invented specifically for the city’s narrow Renaissance streets called the Milan method or cover-and-cut, allowing vertical construction with retaining walls rather than sloped ones that require more street width. M2 was very cheap as well, but M3’s costs were much higher, I believe around $250 million per km in today’s money, built in the 1980s at the peak of Milanese corruption. Costs fell dramatically after a series of anti-corruption prosecutions that put much of the Italian political elite in prison. The Passante Railway was in today’s money around $140 million per km, not all underground, but it’s regional rail with difficult city center construction under three older lines. The more recent lines, M5 and M4 (in this order), run up to $120-160 million per km.

Example 3. Istanbul began building its subway system with M2, M3, and M4; the first Istanbul Metro line, M1, is light rail and its original section had very little tunneling. It used Italian designs and costs were low, not much more than $100 million per kilometer, but subsequently value engineering has led to slightly lower costs. The city had a learning process in which it reduced station footprints to save money, engaged in more extensive prior engineering before putting out new lines to bid, and generally gained experience in managing a project. Newer lines have cost slightly less, for example around $80 million/km for M5, all underground.

The angle of cleaning up corruption and building up state capacity is probably relevant – probably. Italy and Turkey remain very corrupt and clientelist states. In Turkey, the former mayor of Istanbul openly said he was going to prioritize metro construction in neighborhoods that voted for AKP, and then when the opposition won the city election the state stopped giving it money for new lines; construction goes on because the new mayor went to the European Investment Bank for financing. In Italy, for all the clientelism elsewhere, public-sector engineering is fiercely depoliticized and professionalized nowadays.

I might even speculate, without much knowledge yet (we’re still early in the work in Istanbul and even earlier in Milan), that Southern Europe may have such reputation for corruption that it has mundane mechanisms that professionalize public works. The clientelism in Turkey as far as we can tell extends to macro-level decisions of where to build lines, and evidently Istanbul managed to identify alternative sources of financing to the Erdoganist state.

If I’m right, then these same mechanisms of anti-corruption and public-sector professionalization can also be replicated in other parts of the world with state capacity problems. This cannot possibly be everything – Milan reduced its costs from levels that were not extremely high, and Istanbul was cheap from the start – but it does point in a more optimistic direction.

10 comments

  1. Tonami Playman

    Interesting that deep-bore tunneling was cheaper than cut and cover in that era. Was it that the cost of cut and cover has gone down over time or the expensive real estate was a larger component of the cost, or has the cost of deep-bore tunneling gone up over the years due to improved standards and if the standards of the early 20th century was so low how come those tunnels are not collapsing right now?

    • Alon Levy

      So, it wasn’t cheaper than cut-and-cover if cut-and-cover had wide streets to go under, as in New York and Paris. It’s just, nobody cuts-and-covers through built-up areas, so it’s not possible to compare.

    • michaelrjames

      I’ve always understood that the biggest cost of cut-and-over is of relocating all the services. In those early years there would have been a lot less of it. When Haussmann built his new boulevardes and sewers he, or Eugène Belgrand, took advantage of the construction of the sewers to use them for gas lines and potable water lines too. A question I’ve never got to the bottom of, is what happened when they built the Metro on those same boulevardes only 30 years later. Were the original sewers deep enough that the cut-and-cover metro could be put on top of them without disturbance or rebuilding them?
      In London, the difficulties lead them to simultaneously build new sewers and metro by reclaiming the river in what became the Embankment & Chelsea Walk above them.

      • df1982

        If the cost of the District line was the property resumption due to cut-and-cover, couldn’t they have then on-sold the property (or developed it themselves) on top of the “cover” once the line was built? Presumably it would have been more valuable after the line was built than before. (I know a decent chunk of the sub-surface lines remained open cut, but this begs the question whether it would have been profitable to cap them for on-sale purposes). Is on-sale of property factored into the costs you mention? I always thought the advantage of deep-bore tunnelling is not cost per se, but the fact that it doesn’t make the line dependent on existing roadways or dealing with the hassle of resuming property across the entire corridor.

        Also, is percentage of GDP per capita a better metric than raw inflation for judging the evolution of infrastructure costs over time?

        • fjod

          Yes they did do that, but there are a couple of factors to consider:

          1. The line was designed for steam trains, so there needed to be periodic openings to let smoke out. These both lessened the available land above, and I imagine decreased the land value round the openings. Since electrification, some of these have been built over – but there were more when the line was opened.
          2. Britain’s compulsory purchase (eminent domain) legislation at that time was controlled by separate acts of parliament, and this status left wealthy and well-connected people (such as those who had property in west London) with many of the cards. The more extremely well-connected interests (e.g. Lord Braybrooke in Audley End, the university in Cambridge) were able to use their influence to railways coming anywhere near their property. I’m not an expert on the history of the District line but I imagine this played a part in its cost.
          3. I know that in the current British legal precedent, the previous owners of compulsory purchased land have first dibs at re-acquiring it if it is no longer necessary for maintaining the development, and that they have to buy it for the price the owners sold it for (I am oversimplifying but that is the gist). I know this was formalised by the Crichel Down rules in the 50s, but I wonder if it was common practice before then. If it was, that of course limits the potential for value capture.

      • Tonami Playman

        From my understanding. Eugène Belgrand’s sewers were built under the sidewalks and not directly underneath the boulevards.This engraving of a Paris metro station under rue de Rivoli illustrates this with the metro tunnel sitting in between sewers on both sides rather than on top of them. So I would imagine they did not have to rebuild the sewers. More examples can be found in this well illustrated pdf below;

        “Construction du métropolitain à PARIS”

        Click to access construction_m-tro_paris.pdf

        • michaelrjames

          Thanks for that link.
          I’ve never seen a diagram like that. There’s nothing like it in the Donald Reid book Paris sewers and sewermen (but it is disappointing in being almost all text with no diagrams or plans etc). None of the Marville photo-books have anything on the sewers; it seems he never ventured underground.
          A surprise to me is that instead of one big sewer in the middle, they built two, one on both sides of the street. Other places do have single giant sewers that they can float a boat down however maybe this example of rue de Rivoli is more standard.
          Anyway that clearly makes cut-and-cover relatively simple, and especially compared to today.

  2. tompw

    “[Istanbul] had a learning process in which it reduced station footprints to save money, engaged in more extensive prior engineering before putting out new lines to bid, and generally gained experience in managing a project.”

    It sounds like you are arguing here (as elsewhere) that the more engineering the public sector does, the cheaper the line will be. Why is that?

    • yuuka

      I believe Alon’s argument is that the public sector has more of an incentive to develop cost effective engineering because, well, public money is being spent by public servants. Private sector consultants may not have that mindset that the design should be done in a way that it can be cheaply built.

      Personally I disagree given that the possibility of featherbedding still exists in public sector-designed and build-only contracts, and good project controls are needed to overcome this, but oh well…

      • michaelrjames

        @yuuka

        Well, it is dependent on the quality of the civil service which in the Anglosphere has been gutted over the past 4 decades. But when civil servants have reasonably secure jobs and can’t be summarily sacked for speaking up, are appropriately qualified and have safeguarded institutional memory/experience, and are not either over- or under-paid, and can’t sell themselves as private consultants or work directly for the big construction companies …

        As it happens, this stuff has come to light in the past few days as the saga of the building of Sydney’s WestConnex road tunnels (about 30km) then their privatisation, has entered its final stage. This strongly reminded me of Rosenthal’s comment about the Second Avenue Subway when he said major meetings of all those involved but not a single person was there to safeguard the public interest:

        https://www.smh.com.au/national/nsw/nsw-government-to-sell-remaining-westconnex-stake-20201106-p56c2j.html
        NSW government to sell remaining WestConnex stake
        Tom Rabe, 06 Nov 2020

        Notably:

        After the WestConnex Authority was closed in October 2015, the project’s transfer to the Sydney Motorway Corporation was criticised on the basis that this there were then no representatives from transport agencies on the board of the new “private corporation” and also that information about the project would no longer need to be disclosed in the same way that government entities normally did.[54] A proposal in 2016 for an additional tunnel between Iron Cove Bridge and an interchange at Rozelle, required the acquisition of further residential properties. Residents whose homes were affected reportedly received letters about such acquisitions on the same day that the responsible Government Minister said final decisions on them “had yet to be made”.[35] The Russell Review of the acquisition system in 2012 had not been released by 2016.[37]

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