Hong Kong’s MTR (Mass Transit Railway Company) is one of the most profitable transit systems in the world. Rider fares amount to roughly 186% of its operating costs.
In comparison, Toronto recovers about 70% of its operating costs from fares and New York recovers 57%. This means that in the latter two cases, government subsidies are required to keep the systems in operation.
On top of this, Hong Kong relies on a unique “rail plus property” model, meaning that they also use the profits from real estate development activities to fund transit expansion. Here’s more on how it works:
“In a value capture scheme, MTR is granted low-cost land around its future stations [from the government]. It then develops the land and uses the profits to pay for system expansion. Through this system, MTR has managed to build subways and elevated rail lines throughout the islands that make up Hong Kong, largely paying its own way.”
Overall, this seems to make a lot of sense. Which begs the question, could this model – specifically “rail plus property” – be exported to other cities?
NextCity asked this question with respect to New York, but came up with 3 problems: first, New York has an operating shortfall, unlike Hong Kong; second, New York doesn’t have the same amount of government owned land; and third, construction costs are way higher in NYC.
The first thing that comes to my mind is, why are Toronto and New York so bad at farebox recovery? Our infrastructure is not self sustaining; we’re reliant on government handouts.
Looking at fare pricing, there’s a big difference between the cities. Hong Kong charges based on distance traveled, whereas Toronto and New York charge a flat rate. Intuitively, dynamic pricing makes sense, since you’re then able to capture shorter rides that would otherwise be replaced by walking (or other alternatives) and you capture more value during longer rides.
The other big difference is the hyper density of Hong Kong, since we know there’s a correlation between urban density and transit ridership. I would assume that the demand for most of their rail lines is fairly high. And it’s for this exact reason that I’m opposed to the new Scarborough subway line here in Toronto. Building subways in areas of the city without the densities to support it will only exacerbate our farebox recovery problem.
As for the other two points regarding government land and high construction costs, I have to believe that there’s a way to create a “rail plus property” model that circumvents these concerns.
For one, why does it have to be government land? Could we not reward developers with additional density if they build a subway station in the basement of their new building or contribute to a transit fund? The city already allows additional density near subway stations. Why not do the same for locations where we simply want a station?
Transit is too important not to get right. I hope Toronto will soon understand that.