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.


13 thoughts on “What Does Induced Demand Really Mean?

  1. Matthew

    You are right that it is important to have a nuanced understanding of induced demand, where it comes from, what it means. However the 405 widening was a real fiasco. More people travel, perhaps, but everyone has been slowed by a minute on average. The new capacity harmed the experience of existing users.

    We may expect the 2nd ave subway to get crowded and the Lex to remain so. But we don’t expect that the new subway will slow down the old one.

    Highways can easily do that. They put a lot of pressure on existing roads, dumping a whole new slew of cars in a place not able to handle it.

    1. Winston

      The 405 is slightly slower during the peak, but the duration of the extreme congestion has been lessened. This means that for lots of users, the freeway is much better than it was before. This is also fits very well with the latent demand idea. When the road is always congested, people shift their schedules to adapt, meaning that the congested period gets longer. When you improve the road, people revert to their preferred schedules. This is a good thing as there are real economic costs to shifting schedules.
      Was the 405 the best improvement possible? Probably not. Was it useless? No.

      1. Matthew

        It is also possible that people are breaking up car-pools (hopefully not, since it was a car-pool lane) and ditching the bus for their personal vehicle. This is not necessarily increasing the economic benefit of the highway expansion, since the travel was already occurring, but it is increasing the environmental impact in the form of additional pollution, more demand for parking, and the other vicious side-effects that additional cars cause on the urban landscape.

        In all likelihood it is a complex mixture of both effects.

  2. keaswaran

    I often find myself wanting to make these sorts of points when some urbanist blogs bring up induced demand. I especially want to bring it up when people say that induced demand means that transit will do a better job of decreasing congestion than a new road will.

    I was also reading a few year old Texas Transportation Institute report analyzing travel demand between various cities in Texas, where they were projecting demand based on just a constant annual increase, together with a factor for projected population increase, with transit options then being seen as ways to keep highways at capacity or below. Obviously the right way to think of this is that travel demand is a factor of populations and economic activity, but actual travel is a function of travel demand and travel convenience (a combination of time, cost, and comfort). Building a transit option, or doing anything to make driving faster or easier, will generally tend to increased travel, and roads will never get very far above “capacity” regardless of how much demand there is.

  3. Simon Vallée

    Induced demand is real, it’s not really latent demand. People who develop cities, companies and people who decide where to establish their businesses or their homes, they do so using what they know about transport links. If they know a freeway is congested as hell during the peak hours, they may look for locations that allow them to avoid having to use it during those hours.

    Building freeways and widening congested freeways thus opens up more land for development as it bring them “closer” to the rest of metropolitan areas by shortening travel times. This leads businesses and people to go inhabit these areas and to use these freeways or additional lanes. It’s not latent demand because it’s very rare that new roads are built to respond to existing demand, the demand they respond to is a demand that they largely create by inducing development in certain areas, areas that require using the roads to get anywhere else.

    Without freeways, developments would have occurred somewhere else, as long as it would have been allowed to happen. Areas where there are already transport links that can satisfy the need for connection. Thus, new malls at new interchanges are often the other side of the coin of dying commercial areas in older neighborhoods, new subdivisions sometimes are the echo of older emptying neighborhoods (like in Detroit or Oklahoma City). Without the freeways, businesses would have remained in these old areas, people would have renovated the old neighborhoods, with the freeways, these people decide that buying new is preferable to renovating old stuff and they go further out, creating demand for the freeway.

    I am seeing the process in real-time at my job. We have built a new freeway recently where I live and we’re seeing project after project sprouting up at interchanges of the new freeway. Projects that would have happened elsewhere had the freeway not opened.

    As to the point about the objective to transport more people… you have to be careful. Yes, the goal of transport infrastructure is to transport people and things, but transport is like electricity. Yes, it’s good to have to provide for certain things, but you want to use as little of it as possible. If you have a computer that can do the same work as another but using half the power, that is a good thing on every level. Likewise, though transport infrastructure allows people and freight to travel greater distances in shorter time, the best mile is the mile not traveled. So infrastructure that increases distances traveled for the sake of increasing travel distance is not a good investment at all.

    1. Ray

      It is true that adding highway capacity does not “induce demand”. However, what normally happens is that municipalities allow more development than the road network can support. The westside of Los Angeles is a great example of where the road network cannot support the development overly the last 20 years. Even if the 405 was expanded to support the latent demand, the local streets could never be expanded to support the latent demand. Another good example in the 5 freeway in North San Diego county. When originally built, it provided an enormous amount of highway capacity to a rural area. Since the 1980s, as the area developed, the highway finally reached and then exceeded capacity. The highway induced development, without any restrictions to cap development to match the capacity of the highway. Now, the area needs to deal with the latent demand problem. Also, many of the new arterial roads to the sub-developments are exceeding capacity. I think engineers are great at creating systems for 20-30 years of future development. It’s after those 20-30 years that systems breakdown, since it’s impossible for any city to put a hard cap on development. Maybe it’s just not possible to design a transportation system that can adjust to demands 50-100 years in the future.

  4. anonymouse

    Induced demand is more like when there’s a pile of stuff with a giant “FREE!!” sign on it in the store and everyone takes one or two or seven whether they actually need the thing or not, and often actually derive negative utility since it just takes up space and eventually needs to be thrown up. But it’s FREE!!!! so they just have to take it (there’s behavioral econ studies to back up this notion zero price leads to completely different results from any non-zero price). The latent demand for free stuff is nearly unlimited.

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  9. Tom

    Pedestrians require three square meters of public space. Automobiles require 115 square meters – 38 times more. Does this mean that car cities like Los Angeles have to be 38 times larger to accommodate driving? Does the added infrastructure expense put pressure on the Los Angeles city budget. Do businesses suffer because they have more customers than parking? How is all of the parking paid for?

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