Alicia Planincic: Canada’s urban rail construction costs are soaring. But how do we compare to other countries?

In each EconMinute, Business Council of Alberta economist Alicia Planincic seeks to better understand the economic issues that matter to Canadians: from business competitiveness to housing affordability to living standards and our country’s lack of productivity growth. She strives to answer burning questions, tackle misconceptions, and uncover what’s really going on in the Canadian economy.

Urban rail transit has a lot of advantages. Whether we’re talking about LRTs, subways, streetcars, trams, “the metro” or any other form of/name for urban passenger rail, the service can limit congestion, deter urban sprawl, and decrease our carbon footprint. And—at least if you’re not just sitting and scrolling—can even lead to greater social connection.

Given those benefits, you’d think Canada would want to build more rail. And we’ve certainly tried. But recent high-profile cost overruns beg the question: is it just in Canada where the cost of urban rail construction is so high? Or are other countries experiencing the same problem?

Comparing the cost of building passenger rail across countries, or even cities, is not easy. But the Transit Costs Project, a research group based in New York City, took a stab at it. Going as far back as the 1960s, they compiled the total construction cost of major rail projects across big cities. To account for differences in project size, they calculated the average cost per kilometre of rail built.

This data can be used to compare average costs across countries. The results show that Canada spends substantially less than both the U.S. and the U.K. per kilometre of rail constructed (partly because New York City and London are major outliers, cost-wise). But Canada spends more than just about anyone else. It costs more than twice as much to build rail here as it does in Switzerland, and around three times as much as in South Korea. Canada’s on more equal footing with Germany and Japan, but these countries likely see a higher return on investment: they are known to have some of the best rail networks in the world, with incredibly high ridership levels.

As for what drives such wild differences in cost, there are many factors—from the cost of track infrastructure to station design to how difficult it is to acquire land and hire labour. One of the biggest, and least avoidable, factors is simply construction complexity. Railway that needs to be built underground, for instance, requires more planning, excavation, and more advanced (and expensive) equipment.

But these factors alone do not explain the higher cost in Canada. What might account for the difference, according to the Transit Costs Project’s (TCP’s) assessment, is a lack of streamlining in decision-making processes and regulations compared to other countries. While individual cities may vary, the TCP’s research notes there are many institutional and regulatory process similarities across the U.S., U.K., and Canada—the same three countries with the highest costs among those examined. These similarities include the delegation of expertise in planning and procurement, unique rather than standardized designs for each new project, and a focus on minimizing cost overruns rather than total costs. By contrast, low-cost countries such as Spain also share similarities with each other by having standardized designs, itemized contracts, and simpler construction.

Addressing these issues is not easy and is certainly beyond the scope of this post. Doing so would likely involve things like depoliticizing construction projects; streamlining political decision-making, management, design, procurement, and labour relations; as well as facilitating better coordination across agencies and levels of government—all things that are more easily said than done. But if Canadian cities are going to invest in passenger rail transit (and residents actually use the service), it’s worth looking into how we can more cheaply and easily build those systems.

A version of this post was originally published by the Business Council of Alberta at businesscouncilab.com.