While traffic-bound Aucklanders celebrated the announcement last week that central government was bringing its funding for the City Rail Link (CRL) forward by two years, I could not help but feel that New Zealand has lost the infrastructure plot.

Politically, this was a savvy move by Prime Minister John Key. With local government elections set to take place later this year, and the Auckland mayoralty up for grabs, his about-face sends the signal that National is willing to listen to the disgruntled citizens of the biggest city.

Practically, increasing the capacity of Auckland’s rail lines is a good thing, too, especially amid the population growth projections over the next decade or so. (Although it is questionable whether the project will be the congestion panacea that motorists are hoping for.*)

What dismayed me was that it looks as though taxpayers and ratepayers will be on the hook for the entire $2.5 billion CRL bill. The source of this dismay was twofold. The first is my experience with the Hong Kong subway system and the second is a report released last year by the NZ Council for Infrastructure Development (NZCID).

For those that have never experienced it, Hong Kong’s subway system, or Mass Transit System (MTR), is remarkable. The service and infrastructure puts subways in New York and London to shame. Furthermore, the MTR network is expanding, with two new lines under construction.

The corporation, which builds and operates rail networks in Hong Kong and mainland China, is also run as a publicly listed firm.

The secret to the MTR’s success is not in rail but in property development. Every new rail or subway station triggers a significant uplift in the value of land above stations and surrounding areas.

The MTR Corporation captures this value by developing the land itself, or sharing in the profits and management fees from those that do. These mixed-use developments are the stuff of urban planners’ dreams.

The underground station contains retail space, the first two or three floors above ground are typically converted into shopping malls and parking, and above that the remainder is developed as residential or commercial property. The net result is a tidy profit for MTR shareholders (75% owned by the Hong Kong government) and the citizens have access to world-class public transport system without having to bear the full risk and cost.

In Auckland, while taxpayers and ratepayers will foot the entire CRL bill, it looks as if the value uplift will primarily be captured by private property owners. Even were there a way for the council to tap this uplift, its scope is severely limited.

Of the four CRL stations, two (Britomart and Aotea Square) will be in the already developed CBD, while Karangahape is constrained by heritage protections. Likewise, the Mt Eden station is likely to encounter significant opposition from residents to any attempt to lift existing height limits.

That brings us to the NZCID report. Released almost a year ago, it shows the Hong Kong MTR example is not unique but part of a tried and tested model that many countries use to get mega-projects like the CRL off the ground.

In Sydney, for example, a waterfront renewal project is under way to develop $A6 billion worth of commercial and residential property. In this case the public owner of the land has transferred development rights for 99 years to a development partner. This private partner will fund public infrastructure and services using debt that will be repaid from future rental income.

The upside is that previously unused industrial land will be converted into a new development, complete with a new harbour-side public park, without locking the city’s capital up in one project.

Although slightly different in form, these private-public partnerships (PPP) are also commonplace in the UK. Salford Quays in Manchester was once a squalid eyesore in the 1980s but today is one of the desirable parts of the city. What is more, it is still developing.

Outcomes, not inputs

In London, the long derelict area surrounding the Battersea power station is being redeveloped under a PPP. This includes a £1 billion extension to the Northern line subway, paid for by public debt, but serviced by special rates on the development.

While there are significant differences between the jurisdictions, NZCID notes the UK and Australia have several things in common, which unfortunately are less developed in New Zealand. These include the scale of, and ambitious approach to mega-projects, as well as a focus on integration with existing infrastructure, planning and funding.

In the UK and Australia the focus also tends to be on outcomes, not inputs. To illustrate the input-versus-output difference, the report notes that Auckland Transport deferred a major roading improvement project on the grounds that obtaining planning consent would be “challenging.”

Mega-projects in the UK and Australia also tend to be conducted in partnership with private firms as a means of spreading the risk. These projects are for the most part governed by independent bodies separate from public decision making, whereas in New Zealand only two of the 15 mega-projects under way, or in the pipeline, have independent oversight.

Lastly, UK and Australian projects tend to make greater use of private capital, unlike New Zealand where it is public bodies that provide the biggest investment into projects. Just under 90% of Salford Quay’s capital came from private sources.

If this all sounds hyperbolic, consider the Wynyard Quarter. This redevelopment project turned a disused industrial site into a high-end residential and commercial centre. Great! But it is poorly integrated with public transport (no rail connection) and over half the capital necessary to get the first phase of the project off the ground came from public sources (regulatory risk undoubtedly played a hand).

Auckland may get its long-hoped for rail link but how many other transformative developments could have gotten off the ground if New Zealand took a 21st century approach to mega-projects? Alas, as it stands, that is a question that we will be unable to answer anytime soon.

• Empirical research by the Reason Foundation into 74 US cities, using 26 years of data, found no statistically significant link between transit investment and congestion.