Daily Archives: October 26, 2014

What Does Induced Demand Really Mean?

Suppose that New York City were to complete the Second Avenue Subway in 2015, and that in 2020, the line had hundreds of thousands of boardings per day, but the Lexington Av Line were still just as crowded. Would building the Second Avenue Subway be pointless? Or suppose we build a transit line through Sepulveda Pass, attracting hundreds of thousands of boardings per day, but traffic on the 405 doesn’t get any better. Would building the Sepulveda Pass transit line be pointless?

If our answer to those questions is “no”, then we need to think more critically about what it means for traffic to have remained the same on the 405 in the wake of the recent construction of the northbound HOV lane through the pass.

“Induced demand” is usually invoked to suggest the fruitlessness of widening freeways – if you add more lanes and traffic stays the same, why add more lanes? This misses the point. The whole reason you build transportation infrastructure is to move people and goods. Really, the opposite outcome is worse – what’s the point of building infrastructure if no one uses it?

Now, in the case of the 405, you might still argue that the money spent on widening the freeway should have been spent on a transit option instead. The project cost a billion dollars or so, which would be a pretty good down payment on Sepulveda Pass transit. I’m inclined to agree with you on that, but that’s a different argument than induced demand. And if building new freeway lanes through the pass doesn’t make traffic better, logically, neither will building transit. The question is just which project, freeway or transit, is a better investment.

Induced demand is an unhelpful concept. The phrasing makes it sound as if the construction of freeway lanes is what causes more traffic. But that’s not the case; the presence of development that people want to access, like housing, industry, commerce, entertainment and recreation, is what causes traffic. In other words, almost no one drives around on the freeway just to drive around on the freeway; they drive around on the freeway to get to some other place worth going to. When you build freeway lanes, you reduce the costs of traveling between places, so more trips will be made. The desire to travel was there before; the cost was just too high.

But wait, didn’t building transit, and later freeways, cause the growth of suburbs in the US? Well, sort of. If a transportation facility opens up access to development in new areas, you could say it induced its own traffic. But that’s not what people are usually talking about with induced demand, and it’s certainly not the case that widening the 405 was accompanied by a development boom. The Westside and Valley are constrained by zoning, not by the transportation network. If widening the 405 facilitated development anywhere, it would have to be distant places like Porter Ranch, Santa Clarita, and the Antelope Valley, but there hasn’t been a boom there either.

This is an important distinction. Billions of dollars have been wasted building freeways in rural America, in the hopes that the roads would induce demand, leading to economic growth. Likewise, many struggling cities have spent money on transit lines that have low ridership and have created little development.

In a large city, there’s almost always going to be trips that people want to make but don’t because of large travel times. This is especially true in large US cities, where we underprice road capacity to the point that new lanes are almost always quickly filled. We misinterpret the construction of the new lane as having caused the demand, but it was there all along.

We run into the same problem with zoning. Because we have constrained housing supply with zoning restrictions, any residential upzoning is usually followed by a boom in residential construction. We misinterpret the upzoning as having caused the boom, and think that we can cause other types of development, like manufacturing or other industry, by zoning for only those uses. But the upzoning didn’t cause the residential boom; the demand was there all along. So we end up with land zoned for industry sitting vacant or being put to low productivity uses.

What should we call it instead of induced demand? I think latent demand is more accurate, since the demand was there all along, waiting to be released. As an analogy, consider the latent heat of condensation. When air cools down, water vapor will condense into liquid water, releasing energy in the process. The cooling of the air didn’t create the energy; it just allowed it to be released.

So next time a transportation expansion is put to use right away, don’t call it induced demand, call it latent demand.