Transportation Affordability
Strategies To Increase Transportation Affordability
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TDM Encyclopedia
Victoria Transport Policy
Institute
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Updated
August 27, 2007
This chapter describes the concept of “transportation affordability,” its importance to society, how to evaluate it for transport planning, and practical ways to improve it. For more information see Transportation Affordability: Evaluation and Improvement Strategies at www.vtpi.org/affordability.pdf
Transportation Affordability means that user financial costs of transport are not excessive, particularly Basic Access (that is, travel with high social value, such as access to medical services, essential shopping, work, school) for lower-income people. This is a critical Equity objective, since it affects the cost burdens and opportunities available to disadvantaged people.
Transportation Affordability can be evaluated from several perspectives. It is affected by the number of vehicles that a household must own, the costs of owning and driving each vehicle, indirect costs such as residential parking, and the quality and costs of alternative modes such as Transit, Ridesharing, Cycling, Walking, Carsharing and Taxi services. Lower-income households tend to be particularly impacted by the costs of alternative modes, since they rely on them more than households with higher incomes.
Individual and community factors influence transportation affordability. People who must commute to work or school have greater transportation requirements than people who do not work or work at home. People with physical disabilities or other special needs tend to require more expensive transportation services.
Affordability should be evaluated with regard to total rather than unit costs. For example, low per-gallon fuel prices provide less affordability in an automobile-dependent community where high vehicle ownership and mileage is necessary for access than high fuel prices with a more Diverse Transportation system and a more Accessible land use pattern.
In general, Automobile Dependency tends to increase per capita transportation costs and reduce overall transportation affordability, while Smart Growth can increase transportation affordability by creating more Accessible Land Use (which reduces the amount of travel needed for Basic Access) and improving affordable Transportation Options such as public transit, ridesharing, cycling and walking. Smart Growth and TDM programs can help increase the Prestige of affordable modes such as walking, cycling and transit, making it more socially acceptable for residents to use them. As a result, greater portion of household wealth is devoted to mobility in Automobile Dependent communities than in communities with more balanced transportation systems.
McCann (2000) found that households in sprawled regions
devote more than 20% of their expenditures to surface transportation (more than
$8,500 annually), while those in communities with more efficient land use spend
less than 17% (less than $5,500 annually), representing savings of hundreds of
dollars a year. Similarly, lower-income households that rely on automobile
transportation tend to spend a relatively large portion of their income on
basic transportation, while those that use other travel modes spend much less
(STPP, 2003; Bernstein, Makarewicz and McCarty, 2005). Transportation cost
savings of Smart Growth may be offset, at least in part, by higher housing
costs, unless special efforts are made to address housing affordability
objectives (Arigoni, 2001; CTOD and CNT, 2006), for example by offering Location Efficient Mortgages and Parking Management
(Litman, 2003). This pattern is also reflected in time series data.
Transportation increased significantly as a portion of typical household
expenditures during the last century, from 3.1% in 1918, to 15.1% in 1961, and
up to 25.7% in 1987 (Johnson,
Lipman (2006) found that in 17 of 28 Metropolitan areas studied, the average transportation expenses
for working families with annual incomes between $20,000 and $50,000 are
actually higher than their housing costs. Overall, across all 28 Metro areas,
working families spend an average of 28%, or $9,700, of their incomes on
housing and nearly 30%, or $10,400, on transportation. Transportation costs are
based on auto ownership, auto use and public transit use and take into account
the cost of commuting, as well as traveling for school, errands and other daily
routines. While the share of income working families devote to housing and transportation
differed between Metro areas, the combined burden of the two expenses was remarkably
similar. These combined costs range from a low of 54% in
Transportation cost savings are equivalent to increased household income. For example, in an automobile dependent community, a household with two employed adults needs to own two automobiles, costing approximately $10,000 a year, but in a community with a more diverse transportation system, the same household may only need one car, plus $1,000 in transit and taxi fares, saving $4,000 annually. This is equivalent to more than $5,000 in additional pre-tax income. Many households can afford the higher costs of automobile dependency, but some households find these expenses a financial burden and value opportunities to reduce their transportation costs.
A detailed study comparing housing and transportation costs in a typical urban area found that although average household expenditures on housing are similar in different geographic locations, transportation expenditures are higher in outer suburbs and exurban areas than in inner suburbs and cities (CTOD and CNT, 2006; Lipman, 2006), as illustrated in Figure 1. According to this study, transportation costs average 19% of household expenditures overall, but range from about 10% in multi-modal communities up to about 25% in automobile dependent communities. To the degree that Smart Growth reduces household transportation costs it can increase overall affordability and offsets any increased housing costs, which can be considered comparable to additional household income. Transit Oriented Development can increase overall household affordability by reducing transportation costs and increasing income and racial diversity in accessible neighborhoods (CTOD, 2006).
Figure 2 Share
of Income Spent on Housing and Transport
(Lipman, 2006)

The portion of income devoted to housing and transportation combined by lower and moderate income households increases with distance from major employment centers (those with at least 50,000 employees). Reduced housing costs are more than offset by increased transportation costs, reducing overall affordability.
As a general reference, transportation costs can be considered unaffordable if they exceed 20% of a household’s income, which is slightly higher than the national average (excluding expenditures on luxury travel, such as long-distance vacation trips). For a wealthy household earning $100,000 annually, this allows a generous $20,000 to be spent annually on transportation, but for a low-income household earning $20,000, this leaves just $4,000.
On average, low-income motorists spend an excessive portion of their income on transportation, as illustrated in Figure 2. Households in the lowest two income categories devote about a third of total income to transportation, mainly automobiles. This declines to 18.2% for average households with $41,532 in after tax income, and just 13% for the highest income households, those that earn more than $70,000 annually. This indicates that transportation costs are regressive with respect to income. This high cost burden is particularly significant in automobile dependent areas during periods when real (inflation adjusted) fuel costs increase rapidly.
Figure 2 Portion
of Household Income Spent on Transport (BLS,
2000)

Transportation expenditures are highest as a portion of income for lower-income households, indicating that automobile dependency is a financial burden to the poor.
The portion of household income devoted to transportation tends to be particularly high for lower income households that own an automobile and low for households that do not own an automobile. These factors are generally overlooked because most statistics aggregate the two groups together, essentially hiding the excessive cost burden of vehicle ownership on poor households.
Although it is possible to purchase an automobile for just a few hundred dollars, such vehicles tend to be unreliable, with high maintenance and repair cost. As a result, most lower-income motorists constantly face the risk of unaffordable vehicle repair and replacement costs. Vehicle insurance also tends to be a significant financial strain on low-income motorists (Litman, 2004a). Many lower-income motorists are in higher-risk insurance categories due to age, experience and territory rating factors, and so must pay hundreds of dollars for basic coverage. As a result, they face the choice of devoting an excessive portion of their income to vehicle insurance, driving uninsured (which is illegal in many jurisdictions), or foregoing automobile ownership.
On the other hand, a low- or moderate-income household can easily and affordably satisfy their Basic Access needs by using a combination of walking, cycling, ridesharing, transit services and occasional vehicle rentals. TDM strategies that improve these options, and help create multi-modal communities, can significantly increase transportation affordability.
Transportation
Affordability – by Todd Litman
It
is simple human nature that people are most concerned with the problems they
personally face, problems they fear, and problems they hear about from family
members and friends, than they are concerned about more distant problems. Transportation
decision-makers tend to be most concerned about the problems facing
motorists, and less concerned about problems facing non-drivers. After all,
transportation professionals and public officials are mostly physically-able,
middle-class professionals with demanding jobs and active lifestyles. With
few exceptions, they, their colleagues and friends are the type of people who
rely heavily on automobile travel and seldom face serious financial
constraints, such as being forced to choose between paying transportation
expenses and essentials such as utilities or food. As
a result, transportation decisions-makers tend to assume that transportation
affordability means keeping the cost of driving low. They are less likely
to value cost savings opportunities that depend on reduced driving. For
example, a few years ago I was working with a group of professionals
evaluating the potential benefits of Pay-As-You-Drive
vehicle insurance. One of these benefits is that it increases automobile
affordability: rather than paying a large fixed insurance premium, motorists
have the opportunity to save money if they reduce their annual vehicle
mileage. One team member was skeptical. He could not believe that insurance
costs are a major financial burden, or that motorists could significantly
reduce their mileage to capture savings. He argued that insurance companies
were already improving affordability by offering more convenient premium
payment plans. But another team member pointed out, “My secretary, a single
parent, sometimes can’t afford to pay her vehicle insurance premiums, and so
she gives up driving for a several weeks and relies on public transportation,
until she saves a few hundred dollars.” Of
course, completely giving up a car for a few weeks is difficult, because it
cannot be used even for high-value trips. Consumers are generally much better
off with a price structure that allows them to drive when they need to, but
with plenty of opportunities to save money by reducing their driving and
using lower-cost modes. The
most affordable transportation system is one that gives consumers lots of Transportation Options, including walking, cycling,
public transit, taxi service, and ways to use a car with minimal fixed costs
(PAYD and Carsharing). This
allows people to choose the best travel option for each trip. |
These strategies increase transportation affordability by improving the quality of lower-cost transportation modes.
Nonmotorized transportation (walking, cycling, handcarts, etc.) are affordable forms of transportation by themselves, and as access modes to transit. There are many ways to improve Pedestrian and Cycling transportation.
Informal ridesharing is a particularly important option for non-drivers and lower-income residents.
This can help improve transportation options for students and parents, which can be particularly beneficial to lower-income households. Such programs can provide a variety of services, including transit, ridesharing and nonmotorized transportation improvements.
Telecommunications can often substitute for physical travel. Telework programs can help people obtain Internet connections and skills, particularly those who are lower-income.
Taxi service is an important transportation option in many situations. Establishing formal taxi service can improve transportation options in many rural communities.
Transit and Shuttle Services provide affordable transportation. Lower-income people tend to rely heavily on transit (Litman, 2004b). Shifting travel from automobile to transit can provide Vehicle Cost savings, and may allow a household to reduce vehicle ownership, providing thousands of dollars in annual savings.
Bicycling integrates well with Public Transit (bus, train, ferry, and air transport). Transit is most effective for moderate- and long-distance trips on busy corridors, while cycling is effective for shorter-distance trips with multiple stops. Combining transit and cycling can provide a high level of affordable mobility.
These strategies increase transportation affordability by reducing the financial costs of transport services.
Commuter Financial Incentives such as Parking Cash Out and Transit Benefits provide financial rewards to people who use alternative commute modes, as an alternative to parking subsidies. This allows commuters to choose the most affordable mode, and tends to provide financial benefits to lower-income workers, who tend to use alternative modes more than average.
Commute Trip Reduction (CTR) (also called Employee Trip Reduction or Vehicle Trip Reduction) programs give commuters resources and incentives to reduce their automobile trips. Such programs can provide services that improve commuter affordability, including Rideshare Matching, Guaranteed Ride Home, Alternative Scheduling, Telework and Walking and Cycling Improvements.
Subsidies that reduce transit and vanpool fares increase transportation affordability.
Location Efficient Development consists of residential and commercial development located and designed to maximize Accessibility. This improves affordable transportation options, such as walking, cycling and transit, and tends to significantly reduce household transportation costs. If implemented with Parking Management, it can increase housing affordability by reducing parking costs.
These strategies improve transportation affordability by improving land use accessibility, which reduces the amount of physical travel needed to reach goods and activities.
Smart Growth includes a variety of land use management strategies that can reduce Automobile Dependency by increasing Transportation Options and Accessibility. This can provide significant consumer savings (James Taylor Chair, 2000). Specific Smart Growth land use management strategies include:
· Location Efficient Development
· Transit Oriented Development
Many lower income people would like to live in more accessible neighborhoods or use alternative transportation modes, but they feel unsafe doing so. Programs that Address Security Concerns of walkers, cyclists and transit users, and improve safety in urban neighborhoods, can help increase transportation affordability.
These strategies improve transportation affordability by reducing the cost of using an automobile.
Carsharing refers to automobile rental services intended to substitute for private vehicle ownership. It makes occasional use of a vehicle affordable, even for low-income households.
Pay-As-You-Drive vehicle insurance and registration fees convert these into variable costs: the less you drive the less you pay. This makes vehicle ownership more affordable, provided that motorists limit their driving (Litman, 2004a).
Other affordability impacts of TDM are discussed below.
Some TDM strategies can reduce transportation affordability for some users while increasing it for others. In particular, Parking, Road and Vehicle pricing strategies may increase the cost of driving, at least under certain circumstances, and therefore reduce transportation affordability for some users, while providing savings for other types of consumers. The overall affordability impacts depend on several factors, including how groups are defied, the quality of transportation options available, and how revenues are used (Pricing Evaluation). If additional revenues are used, in part, to reduce other taxes or improve affordable transportation options (such as improving transit services), they are likely to provide economic benefits overall to lower-income households.
In general, affordability increases overall if consumers pay directly rather than indirectly for expenses such as roads and parking facilities, because direct payment allows consumers a new opportunity to save money by reducing their vehicle ownership and use. For example, if parking is bundled with housing costs, consumers must pay regardless of whether or not they own a vehicle. Charging directly for parking provides savings to households that own fewer than average vehicles, and allows a household the option of saving money by reducing their vehicle ownership. Similarly, Congestion Pricing allows consumers to save money if they use alternative modes, routes or travel times to avoid driving on congested roads. Overall affordability tends to increase with Transportation Diversity, which gives travelers affordable alternatives so they can reduce their vehicle use.
Some TDM strategies, particularly Smart Growth, have been criticized for reducing housing affordability (QuantEcon, 2002). Critics argue that urban growth boundaries and other regulations limiting urban fringe housing development in growing urban regions reduce the supply of land available for new construction, raising housing costs by thousands of dollars per unit. However, the ability to expand outward is just one factor affecting housing supply and affordability. Other factors include the ability to infill and increase density, which are affected by traditional regulations such minimum parking requirements and building setbacks. For example, requiring two parking spaces per housing unit increases urban housing development costs by $10,000 to $30,000 per unit compared with requiring one space, or with unbundling parking from housing costs (i.e., renting parking spaces separately from housing units), and regulations requiring setbacks, restricting density and prohibiting secondary suites can have similar economic impacts (Location Efficient Development). The academic evidence concerning the effects of growth management regulations indicates that when other factors are considered, Smart Growth does not reduce housing affordability (Nelson, et al., 2002; Wassmer and Baass, 2005).
A study by Miller, et al. (2004) used census consumer
expenditure data and transportation survey information to compare housing and
transportation costs for residents of various locations in the
“It is generally believed that many households choose to
live in suburban locations either because housing costs are lower there or
because households can obtain ‘more house’ for a given expenditure,” says study
author Eric Miller. “But housing costs and travel costs tend to increase as one
moves away from the central areas of the region’s cities, particularly from
(downtown)
A number of specific Smart Growth and TDM strategies can help increase housing affordability (Arigoni, 2001). These include:
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True Housing Affordability – by Jim Lazar An “affordable” home is one that: 1. Is located close to transit, shopping, schools and employment, so households can reduce the number of vehicles they must own (for example, owning one rather than two cars), and the miles they must drive. This can save $2,000 - $5,000 per year in vehicle ownership and operating costs. 2. Is energy efficient. This can save $500 - $1,000 per year. 3. Is built with quality materials. This can reduce annual maintenance and replacement costs. 4. Is built with non-toxic materials. This helps prevent respiratory illnesses, saving 2-10 sick days annually. The economic value of good health is extremely high, if difficult to measure. 5. Supports community cohesion (designed to encourage friendly neighborly interactions). This tends to increase security, reduce expenses such as childcare, and improve residents’ quality of life. It’s
the sum of the mortgage payments, the maintenance costs, the transportation
costs, health care costs and child care costs that determines affordability,
not just the seller’s asking price for a home. |
For information on user costs see Driving Costs and Transportation Costs. For discussion of the context of Transportation Affordability see Equity Evaluation, Transportation Options, and Basic Access. For discussion of how geographic factors affect transportation costs see Land Use Evaluation and TDM in Developing Regions.
|
A
gentleman invited some friends over for a dinner party. Late in the evening
he decided to open a very old bottle from the depths of his wine cellar. When
he popped the cork, out came a Genie rather than wine. “For
releasing me from that bottle, I will give you a choice of gifts. You can
either choose great wisdom or a handful of gold coins,” the Genie offered. The
gentleman thought for a moment. Not wanting to appear greedy he said, “I
choose wisdom over wealth.” The Genie touched him on the forehead which
produced a blinding light, and then disappeared in a puff of smoke. The
friends all stared at their friend. After a period of silence, one inquired
respectfully, “Now that you have great wisdom, what can you share with the
rest of us?” The
gentleman looked at his friends and replied thoughtfully, “I should have
taken the money.” |
Affordable Housing Design Advisor Website (www.designadvisor.org), sponsored by the U.S. Department of Housing and Urban Development, provides information on developing more affordable housing, redeveloping urban communities and implementing Smart Growth.
AARP (2005), Livable Communities: An Evaluation Guide, AARP Public Policy Institute (http://assets.aarp.org).
Danielle Arigoni (2001), Affordable Housing and Smart Growth: Making the Connections, Subgroup on Affordable Housing, Smart Growth Network (www.smartgrowth.org) and National Neighborhood Coalition (www.neighborhoodcoalition.org).
Scott Bernstein, Carrie Makarewicz, Kara Heffernan, Albert Benedict and Ben Helphand (2004), Increasing Affordability Through Reducing the Transportation and Infrastructure Cost Burdens of Housing, Atlanta Neighborhood Development Partnerships (www.andpi.org); available at www.andpi.org/uploadedFiles/pdf/03MICI%20MTC%20Report_CNT.pdf.
Scott Bernstein, Carrie Makarewicz and Kevin McCarty (2005), Driven to Spend: Pumping Dollars Out Of Our Households And Communities, STPP (www.transact.org).
Brookings Institute (2005), The Price is Wrong: Getting the Market Right For Working Families in Philadelphia, Metropolitan Policy Program, Brookings Institute (www.brookings.edu).
BLS (annual reports), Consumer Expenditure Survey, Bureau of Labor Statistics (www.bls.gov).
BTS (1997), Mobility
and Access; Transportation Statistics Annual Report 1997, Bureau of
Transportation Statistics (
Edward Carman, Berry Bluestone and Eleanor White (2003), Building on our Heritage: A Housing Strategy for Smart Growth and Economic Development, Center for Urban and Regional Policy, Northwestern University (www.curp.neu.edu), for the Commonwealth Housing Task Force.
CNT (2006), Paved Over: Surface Parking Lots or Opportunities for Tax-Generating, Sustainable Development?, Center for Neighborhood Technology (www.cnt.org/repository/PavedOver-Final.pdf).
CTOD and CNT (2006), The Affordability Index: A New Tool for Measuring the True Affordability of a Housing Choice, Center for Transit-Oriented Development and the Center for Neighborhood Technology, Brookings Institute (www.brookings.edu); available at www.brookings.edu/metro/umi/20060127_affindex.pdf.
CTOD (2006), Preserving and Promoting Diverse Transit-Oriented Neighborhoods, Center for Transit-Oriented Development, funded by the Ford Foundation (www.reconnectingamerica.org); available at www.cnt.org/repository/diverseTOD_FullReport.pdf.
Coordination Council for Access and Mobility (www.ccamweb.org) is supported by the US Department of Transportation and the Department of Health and Human Services works to increase the cost-effectiveness of resources used for human service transportation.
DETR (2000), Social Exclusion and the Provision and
Availability of Public Transport, Mobility and Inclusion Unit, Department
of the Environment, Transport and the Regions,
Gender and
Transport website and Social
Exclusion & Transport website, Dept. of Planning,
Edward L. Glaeser, Matthew E. Kahn and Jordan Rappaport
(2000), Why Do the Poor Live in Cities?
Discussion Paper Number 1891, Harvard
Institute of Economic Research, (http://econweb.fas.harvard.edu);
at http://econweb.fas.harvard.edu/hier/2000papers/HIER1891.pdf.
Peter M. Haas, Carrie Makarewicz, Albert Benedict, Thomas W. Sanchez and Casey J. Dawkins (2006), Housing & Transportation Cost Trade-offs and Burdens of Working Households in 28 Metros, Center for Neighborhood Technology (www.cnt.org); available at www.cnt.org/repository/H-T-Tradeoffs-for-Working-Families-n-28-Metros-FULL.pdf.
Richard Haughey, et al. (2007), Ten Principles for Developing Affordable Housing, Urban Land Institute (www.uli.org).
Wenya Jia and Martin Wachs (1998), Parking Requirements and Housing Affordability; A Case Study of San Francisco, Research Paper 380, University of California Transportation Center (www.uctc.net).
James
Taylor Chair (2000), Status Quo Standards Versus An Alternative Standard, East Clayton
Two Alternative Development Site Standards Compared, Technical Bulletin University
of British Columbia, Landscape Architecture (www.sustainable-communities.agsci.ubc.ca/bulletins/TB_issue_02_ADSedit.pdf).
Jobs Access Project (http://povertycenter.cwru.edu) is a
multi-faceted project by the Center on Urban Poverty and Social Change at
David S. Johnson, John M. Rogers and Lucilla Tan (2001), “A Century Of Family Budgets In The United States,” Monthly Labor Review (www.bls.gov/opub/mlr/2001/05/art3full.pdf), May 2001, pp. 28-46.
Barbara Lipman (2006), A Heavy Load: The Combined Housing and Transportation Burdens of Working Families, Center for Housing Policy (www.nhc.org/pdf/pub_heavy_load_10_06.pdf).
Todd Litman (2003), Parking Requirement Impacts on Housing Affordability, VTPI (www.vtpi.org); available at www.vtpi.org/park-hou.pdf.
Todd Litman (2004a), Pay-As-You-Drive Pricing For Insurance Affordability, VTPI (www.vtpi.org); available at www.vtpi.org/payd_aff.pdf.
Todd Litman (2004b), Evaluating Public Transit Benefits and Costs, VTPI (www.vtpi.org); available at www.vtpi.org/tranben.pdf.
Todd Litman (2005), Understanding Smart Growth Saving, VTPI (www.vtpi.org); available at www.vtpi.org/sg_save.pdf.
Todd Litman (2006), Smart Growth Reforms, VTPI (www.vtpi.org); available at www.vtpi.org/smart_growth_reforms.pdf.
Todd Litman (2007), Transportation Affordability: Evaluation and Improvement Strategies, VTPI (www.vtpi.org); at www.vtpi.org/affordability.pdf.
William Lucy and David L. Phillips (2006), Tomorrow’s Cities, Tomorrow’s Suburbs, Planners Press (www.planning.org).
Barbara McCann (2000), Driven to Spend; The Impact of Sprawl on Household Transportation Expenses, STPP (www.transact.org).
Eric Miller (2004), Travel and Housing Costs in
the Greater
MWCOG (2005), Toolkit for Affordable Housing Development, Metropolitan Washington Council of Governments (www.mwcog.org), Publication Number: 20058254; available at www.mwcog.org/uploads/pub-documents/9VpbXg20060217144716.pdf.
Arthur C. Nelson, Rolf Pendall, Casy Dawkins and Gerrit Knaap (2002), The Link Between Growth Management and Housing Affordability: The Academic Evidence, Brookings Institution Center on Urban and Metropolitan Policy (www.brook.edu); available at www.brook.edu/dybdocroot/es/urban/publications/growthmang.pdf.
QuantEcon (2002), Smart Growth and Its Effects on
Housing Markets: The New Segregation,
Lorien Rice (2004), Transportation Spending by Low-Income California Households: Lessons
for the San Francisco Bay Area,
Public Policy Institute of
Ryan Russo (2001),
Planning for Residential Parking: A Guide For Housing Developers and
Planners, Non-Profit Housing Association of Northern
SFU (2006), Affordability by
Design: Affordability for All, City
Program,
SPUR (1998), Reducing Housing Costs by Rethinking Parking Requirements, The San Francisco Planning and Urban Research Association (www.spur.org).
STPP (2003), Transportation Costs and the American Dream: Why a Lack of Transportation Choices Strains the Family Budget and Hinders Home Ownership, Surface Transportation Policy Project (www.transact.org).
Urban Land Institute (www.uli.org) is a professional organization for developers that provides a variety of resources for affordable housing planning and development, including reports such as Ten Principles for Developing Affordable Housing and Best Practices in the Production of Affordable Housing.
Robert W. Wassmer and Michelle C. Baass (2005), Does a More Centralized Urban Form Raise Housing Prices, APPAM “Suburbanization and its Discontents” conference; Journal of Policy Analysis and Management; California State University Sacramento (www.csus.edu/indiv/w/wassmerr/WassmerBaassSprawlHousing.pdf).
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Encyclopedia is produced by the Victoria Transport Policy Institute to help
improve understanding of Transportation Demand Management. It is an ongoing
project. Please send us your comments and suggestions for improvement.
Victoria Transport Policy Institute
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