The street economics of induced demand

This post, by Connor Jones, originally appeared on In keeping with The Greater Marin's style, in-text citations have been added.

There’s a lot of misinformation out there about induced demand (Littman 2015), a widely established city planning model that attempts to explain why cities tend to maintain a steady state of congestion. I’ll go into some more detail on the theory of induced demand later, but I wanted to start with the economic model.

Image by Connor Jones,

Auto transportation market

The amount that people drive is determined by market forces of supply and demand. Consumer preferences about driving are provided by the demand function, which shows that drivers choose to drive less as the cost of driving increases. Conversely, the supply function is a representation of the existing stock of roadways. In this case, the cost of auto travel is congestion.

Model Assumptions

The principle assumption is that the primary variable cost of auto travel is the time it takes to get from point A to point B, which is reasonable since the fixed cost of owning a car far outweighs the cost of gas for a majority of consumers. (Consider a worker who makes $15 an hour full time. An increase in average commute times by 12 minutes per day decreases his income by $750 a year—the equivalent of a 2.5 percent pay cut.) Even so, the price of gas does factor into people’s driving decisions, so we have to assume that the price of gas is constant. Furthermore, we assume that consumers’ driving preferences are constant. (More on this assumption later.)


The most common justification cited for building a new roadway is to reduce congestion, which makes sense. Most localities will commission a traffic study, which frequently assume constant growth of drivers and therefore also congestion.

Induced demand shows a different story, however. According to our model, the increase in the stock of roadways shifts the supply curve out, which does, in fact, reduce congestion in the short term, but, not as much as it would were there not growth in the number of vehicle miles traveled. Since the cost of driving is reduced, drivers both make longer and more frequent trips in the short term. As we can see from our graph, the number of vehicle miles traveled increases from q1 to q2.

In the long term, the reduced congestion encourages the construction of less dense housing developments far from the city center. With the new roadway, commuters can live farther from their places of work and leisure at the same cost. Over time, these developments shift the demand curve out, reducing the gains against congestion and further increasing the number of vehicle miles traveled.

The effect on cities

The auto transportation market explains the intuition that building more freeways makes a city more car-dependent and encourages sprawl. In very many documented cases (which I will summarize on Friday), building a new roadway does not reduce congestion for very long. Cities that invest in auto infrastructure do not see improvement in congestion (Gehl 2010).

What traffic engineers assume

According to Jeff Speck in Walkable City (which I’m still reading), traffic engineers commonly assume that demand for roads will increase at a constant rate, year over year (2013). With that assumption in place, you can see how they could come to the conclusion that a new freeway will improve congestion in the long term. The market movement without induced demand is illustrated below.

Image by Connor Jones,

The conclusions reached are vastly different. Under these assumptions, after opening the freeway, there is no increase in vehicle miles traveled (which is not corroborated by real-world data.) The reduction of congestion is larger than the induced demand model predicts, and the only growth in demand is independent on roadway growth.


The relative sizes of the movements along the curves will vary depending on the slope of the demand curve (which is dependent upon consumer preferences, which vary from place to place). We will examine the variation in the relative effects of induced demand later this week.

Public policy implications

Government-supported roads are effectively subsidies for motorists. Without as much investment in roads, the free market would have a greater incentive to create public transportation and dense housing options in city centers. For this reason, the enemy of the walkable city is the six-lane freeway. As I have argued before (and will no doubt argue again), walkability serves several public policy goals at once (Jones 2014a).

Works Cited

h/t to Jeff Speck’s Walkable City, where I found much of this information. All resources:

Federal Highway Administration. 2012. “Induced Travel: Frequently Asked Questions.” Office of Planning, Environment, & Realty (HEP). December 3.

Gehl, Jan. 2010. Cities for People. Washington, DC: Island Press.

Jones, Connor. 2014a. “Want to Reduce Reliance on Foreign Oil? Start with Walkability.” June 12.

Littman, Todd. 2015. “Generated Traffic and Induced Travel: Implications for Transport Planning.” Victoria, BC: Victoria Transportation Policy Institute.

Mann, Adam. 2014. “What’s Up With That: Building Bigger Roads Actually Makes Traffic Worse.” Wired, June 17.

Schmitt, Angie. 2012. “Report: Traffic Studies Systematically Overstate Benefits of Road Projects.” Streetsblog USA. July 6.

Speck, Jeff. 2013. Walkable City: How Downtown Can Save America, One Step at a Time. 1st edition. New York: North Point Press.

Original Post

Jones, Connor. 2014b. “The Street Economics of Induced Demand.” June 25. Reposted with permission.