One Less Car: More money for me, more money for you!

My family eagerly decided to forgo a second car four years ago when we moved to Dunedin, New Zealand; a decision we have never regretted. It turns out by doing so, we are not just happier, healthier, and polluting less, but we are also considerably wealthier while helping our local economy through the “multiplier effect“. Let me explain.

Money carWhat does it cost to own a car? It’s not just what you pay for the car, but the total monetary outlay. Those costs can vary quite a bit for different people depending on where you live, how you drive, how fast you drive, what you drive, how far you drive (Kiwi’s drive on average 14,000km per year according to the AA*), interest and insurance rates, depreciation, maintenance, unexpected repairs and other factors. Let’s keep it simple. According to the AA*, for Kiwi’s the average car costs ranged from about NZ$7,400  to NZ$15,000 per year in 2012 (per year for the first 5 years of ownership). So let’s assume one spends on average, something in the middle, say around NZ$11,000 per year.

That’s approximately my annual personal one-less-car dividend from not being a two-car family. Of course it’s offset by extra expenses for bikes and transit use, but these amount to less than about NZ$1,000 per year. So I am still NZ$10,000 ahead. That’s a tax-free (I already paid taxes on the income) NZ$770 per month. I won’t get into land use details right now, but having one car also means I don’t need two garages and thus my house payment is smaller (or I have more storage) as well as my impact on the neighbourhood and city services for all that free parking. Did you know kerb parking space, most of which pays no rates, typically takes up ~5% of the urban environment (Shoup**) a gift from the City to car users.

Now back to the multiplier effect. About 3/4 of the money you and I spend on petrol and 86% of the money we spend on car purchases immediately leaves the Dunedin economy (see NY City Green Dividend). Why is that? Because we don’t make cars and we don’t own oil wells and refineries here. It’s a similar story for insurance, often owned here by offshore companies and shareholders from who knows where. Put simply, when you spend less on cars, you have more left over to spend locally.

FatWhen you spend more locally the multiplier effect works like this (in principle, don’t hang onto the actual dollar amounts, it’s an economics lesson, not a precise calculation).  Say I have $10 in my pocket. I go to my favorite coffee shop and get something for me and a friend. That $10 pays for a staff member to head over after work to a brewery. The night shift worker there takes the $10 to the Farmer’s Market the next day to buy a couple of bacon butties and so it goes. The 10 dollars has turned into 30 dollars in GDP with each transaction and portions continue to be recycled through our local economy. If the 10 dollars was spent on petrol, most of it left Dunedin right away and could not multiply.

Caveats: ‘Your mileage may vary’, as they say. First, you may decide to use the all the savings for a trip to Fiji; great for Air New Zealand and the Fijian economy, not so good for Dunedin. Secondly, if you happen to own a car dealership or petrol station, declining car ownership trends won’t help your business unless you start selling electric bikes as well. There are always winners and losers as people make choices what they desire, what to invest in, and where to spend their dollars. But less income for car-related businesses means more opportunities for bike-related and other businesses. Times change and smart business men and women change with their customers. No one is lamenting the loss of horse and buggy sales are they?

The key takeaway is that when more money stays longer in the local economy more local people gain. It makes the local economy more productive and resilient. With the challenges regional centers like Dunedin faces competing economically and politically with the big urban centers, it is good business to counter the threats and replace them with opportunity and efficiency. Excessive car ownership can actually weaken the local economy (and I haven’t even brought in the substantial health care and social costs from injury and inactivity).

Does this actually work in the real world? Look here at a graph of the per capita GDP for different states in the US, by the per capita annual mileage driven.***

GDP and VMTPer capita economic productivity increases as per capita vehicle travel declines (each dot is a U.S. state.). This is not a one-to-one causal relationship, but it is consistent with the notion that reduced car use can contribute to overall economic strength.

Some back-of-the-envelope calculations suggest that if each Dunedin household with two or more cars would drop one (there are 45,000 occupied dwellings according to the 2006 Stats NZ Census and about 47% of them have two or more vehicles) there would be 21,000 fewer cars in the City at a cost savings of ~$10,000 / car = about $200 million  (rounded) per year. If say, on average, 75% of that cost leaves the local economy, we lose about $150 million per year. To put this into some perspective, $150 million is pretty close to 70% of the total annual operating costs for the City.

At a recent DCC Infrastructure committee meeting, one of the City Counselors, not anti-bike by any means, but a consistent and principled proponent for fiscal restraint, suggested that Dunedin cannot afford to invest in the facilities for a safe modern cycle network. I disagree, and fortunately it appears a majority of other Councillors do as well. Cycle infrastructure is a smart investment because:

  • The primary purpose of the investment is safety for vulnerable road users, not amenities. Police crash reports from 2003-2012 show that cyclists made up 10% of the fatal and serious injuries in Central Dunedin, though they make up only about 3-5% of the mode share, perhaps less. Over this period, 5 pedestrians and 3 cyclists have been killed – no motorists have been killed.
  • The cycle network budgets are only a couple percent of the current DCC road budget and much of it is matched by NZTA funds.
  • There are many other types of benefits reduced car dependency offers to the individual and the community; the happier, healthier, livability and polluting less benefits (to be detailed in an upcoming post).
  • And…

The local multiplier effect says we all can be better off in many ways
by choosing one less car.

*AA, Petrol Car Operating Costs, Report No. 12-182. 2012.
**Shoup, The High Cost of Free Parking, published by APA Planners Press, 2005.
***Litman, T. “Are Vehicle Travel Reduction Targets Justified?” 10 December 2012.
Inspiration and thoughts from Meika Weiss: $7,000 Dollars in your pocket and Shifting $7,000 from a Car to a Community.
Thanks to Mr Todd Litman who kindly commented on this post.
This entry was posted in Economics, Infrastructure. Bookmark the permalink.

8 Responses to One Less Car: More money for me, more money for you!

  1. Pingback: They should be paying us | NzoLand

  2. Trina Forsythe says:

    Would love it drop one of our cars but what happens when you live in the country?

  3. Pingback: One Less Car: More money for me, more money for you! | Tumeke Cycle Space

  4. Car storage on roads is mentioned … and nice to have that figure of 5% of urban space…. that’s a big subsidy from local government! The cost of putting in a garage on our property is at least $50,000!
    However, a bicycle and electric scooter can be just wheeled under a verandah!

  5. John Maffey says:

    I like this “economics made simple” description of cars versus bikes. I have a van and a 2 door car and 4 bikes but always use the one of the bikes if circumstances allow. Commuting where I live is pretty easy- a provincial town where everything is within about 5 km – but it is those short vehicle trips that are extra costly to the driver and the environment. However most people have a love affair with their car so it is about incentives to leave the car behind and use public transport, the bike or walk. That needs price signals as well as user friendly biking environments as a core Government policy. No one likes to pay more for petrol but long term it is good for us.

  6. Russell Tregonning says:

    Great article Hank. And you hardly mentioned the huge benefit to us all of reduced C-emmissions. So reducing car use contributes to mitigating climate change: this an approaching public health emergency if we do nothing ( i know you realise this very well).
    Well spoken.

  7. I think that is excellent. I ride my electric bike to work and love it.

  8. Well written, like your details. I ride both a scooter and cycle. Love to commute. Yes cars are expensive, require huge amounts of space ie land for roads, parking, sheds….they shed their byproduct s of oil residues to the roads, drains, rivers, air. The combustion engine requiring a pollutant of oil will fail. It’s shed it’s black stain on society. Costs, Costs, Costs. I go to the local tip and find an old racing bike, two weeks later it’s up an running, the only cost new tyres, two cables.

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