Can a private company profit from commuter rail service in the Ottawa-Gatineau region?

By John Michael McGrath - Published on Aug 09, 2016
Virtually all passenger rail in Canada is publicly-run . It wasn't always that way. (BostjanT/iStock)

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If a group of local businesses gets its way, in a few years Ottawa will be home to something it and the rest of the province hasn’t seen since at least the 1970s: a privately run, profit making rail company.

Once upon a time, all rail passenger companies in Canada were privately-owned. Toronto’s transit system started out that way, and Via Rail was created by the federal government in the 1970s only after other railways decided to get out of the passenger business. In Ottawa, OC Transpo was preceded by the Ottawa Electric Street Railway Company which started operating in 1870 and was taken over by the city after a referendum in the late 1940s.

So why does the Moose Rail Consortium think it can succeed in a business where private operators have been mostly absent for decades? Director general Joseph Potvin says Moose, unlike other transit operators, will make its money on the real estate around train stations and not simply from the fare box.

“It’s a property-oriented project, which means we’re not just thinking about this from a transit planner’s point of view,” Potvin says. That means, for example, that Moose isn’t simply thinking about morning and evening rush hour service.

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“The train is to the properties the way an elevator is to a building: you can imagine if a building owner said, ‘We’re only going to run the elevator a few times at rush hour, when everyone needs it.’ That’s not going to work,” he says.

The general concept is called land-value capture, and it’s not mysterious: while the exact numbers vary, there’s a long history of transit improvements increasing the value of real estate around major bus and rail stations. And some public transportation operators have capitalized on it. Los Angeles built a streetcar network in the early part of the 20th century as a real-estate development scheme, and Hong Kong is widely considered a world leader in the practice.

Recent efforts to do the same thing in North America have been modest. Metrolinx, the regional transit planner for the Greater Toronto Area, considered land-value capture in 2013, but concluded only $20 million a year was a realistic estimate of what it could raise in the GTA. The Toronto Transit Commission’s annual operating budget alone is nearly $500 million.

Murtaza Haider, professor of urban analysis at Ryerson University and co-author of a paper on land value capture for the Munk School of Global Affairs, says the concept can pay greater dividends when the same company owns both the land to be developed and the transit service.

“If a private developer sees land value increase due to new infrastructure, that private developer will be able to keep most of the profits to themselves,” Haider says. “If the same concession that’s behind the construction and subsequent operation of transit facilities, if they own the land and develop it, they’ve got a much larger capacity to raise funds for transit.”

Potvin believes that Moose can do better than that. The group’s business plan is to offer its train service on rail lines that already exist (but are owned by other companies, such as Via) and recruit local communities and landowners to own the train stations they would serve. In exchange, Moose would get some fraction of the increase in property values in the form of a fee paid for the train service.

The town of Smiths Falls, about an hour’s drive southwest of Ottawa, sits at the end of one of Moose’s proposed lines. Mayor Shawn Pankow says the kind of connection Moose is proposing would be a huge benefit to his community.

“Enabling people from Ottawa to come to work, or come to shop, be tourists, from an economic development standpoint it’s a real positive,” he says.

Luring Ottawa residents to take advantage of Smiths Falls’ lower costs of living will drive up the town’s home prices, Pankow adds. “People raising their families here, spending their disposable income here, there’s really no limit to the growth we could achieve.”

In Arnprior, also about an hour’s drive west of Ottawa, mayor David Reid is also positive, though he raises concerns about the physical state of the rail line leading to his community. He says it was not built to handle trains moving at the kind of speeds Moose is promising.

“Certainly the concept is wonderful, and if they can overcome some of those hurdles it would be an asset for the town,” Reid says. “We’ll be happy to help out.”

Haider points out several concerns he sees in Moose’s proposal, most notably whether Moose can deliver on a better experience for its passengers relative to driving a car from home to the office.

“There’s a reason people travel by car, because the travel to and from a train station can sometimes take as long as the travel by train itself. Often it’s faster to simply drive, and cheaper,” Haider says. He also questions whether Moose’s plans would generate the kind of increase in demand for properties around the region it will need.

Potvin acknowledges that Moose will need to pay for upgrades to the rail line to Arnprior as well as other pieces of infrastructure in the region, including the Prince of Wales Bridge across the Ottawa River. Bridge upgrades alone would cost an estimated $50 million.

Asked about potential risks—if, for example, the hoped-for 35,000 daily riders don’t materialize—Potvin emphasizes that what matters most in the beginning is the demand for real estate around stations, so long as the long-term ridership potential is there.

And, he says, the first steps of Moose’s plan are relatively modest and incremental. He says a train station doesn’t need to be costly to work, and all the rail on which lines Moose is planning to operate already exist.

“The megaproject is already built here,” Potvin says. “All the tracks are there. All we’re organizing is the train service itself.”

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