The Subways of Hong Kong: the World’s Best … and Cheapest
|December 3, 2013||Posted by Staff under Good Press|
This 2013 excerpt of The Atlantic, Spt 10, is by Neil Padukone.
Hong Kong’s Mass Transit Railway (MTR) Corporation, which manages the subway and bus systems on Hong Kong Island and, since 2006, in the northern part of Kowloon, is considered the gold standard for transit management worldwide. In 2012, the MTR produced revenue of 36 billion Hong Kong Dollars (about U.S $5 billion)—turning a profit of $2 billion in the process. Most impressively, the farebox recovery ratio (the percentage of operational costs covered by fares) for the system was 185 percent, the world’s highest. Worldwide, these numbers are practically unheard of —- the next highest urban ratio, Singapore, is a mere 125 percent.
In addition to Hong Kong, the MTR Corporation runs individual subway lines in Beijing, Hangzhou, and Shenzhen in China, two lines in the London Underground, and the entire Melbourne and Stockholm systems. And in Hong Kong, the trains provide services unseen in many other systems around the world: stations have public computers, wheelchair and stroller accessibility (and the space within the train to store them), glass doors blocking the tracks, interoperable touch-and-go fare payment (which also works as a debit card in local retail), clear and sensible signage, and, on longer-distance subways, first-class cars for people who are willing to pay extra for a little leg space.
How can Hong Kong afford all of this? The answer is deceptively simple: “Value Capture.”
Like no other system in the world, the MTR understands the monetary value of urban density. Hong Kong is one of the world’s densest cities, and businesses depend on the metro to ferry customers from one side of the territory to another. As a result, the MTR strikes a bargain with shop owners: In exchange for transporting customers, the transit agency receives a cut of the mall’s profit, signs a co-ownership agreement, or accepts a percentage of property development fees. In many cases, the MTR owns the entire mall itself. The Hong Kong metro essentially functions as part of a vertically integrated business that, through a “rail plus property” model, controls both the means of transit and the places passengers visit upon departure. Two of the tallest skyscrapers in Hong Kong are MTR properties, as are many of the offices, malls, and residences next to every transit station (some of which even have direct underground connections to the train). Not to mention, all of the retail within subway stations, which themselves double as large shopping complexes, is leased from MTR.
MTR’s financial largesse means that the transit system requires less maintenance and service interruptions, which in turn reduces operating costs, streamlines capital investments, and encourages more people to use transit to get around. And more customers means more money, even if fares are relatively cheap: most commutes fall between HK $4 and HK$20 (about 50 cents to $3), depending on distance. (In London, by comparison, a Tube journey can cost as much as $18).
Ed. Notes: A transit agency need not own real estate, not if it has the power to recover the land values that arise around its stops and stations (or if the local government recovers those “ground rents” via a tax or fee or dues on behalf of the metro system).
This model of self-financing could be used for all infrastructure, not just transit, and for other public programs, too, like parks. All those improvements increase nearby location value and, if the improvement is truly desired by the public, they increase the value of the site by more than the cost of the project. Some big name economists (Stiglitz, Vickrey) noted this phenomenon and called it the “Henry George Theorem”, after the 19th c. reformer then famous for advocating a single tax on land value.
And it’s not just public works that lift locational rents but also private works, like a private school, a popular shopping district, and in the old days a church (a big speculating landowner would donate land to the faithful for building a church, knowing its followers would move in and push up site values). In general, society has generated so much land rent — and continues to do so daily — that if all were recovered (by dues, taxes, fees, whatever), it’s enough to fund any truly desired public service plus pay citizens a dividend. We just need to apply the lesson of Hong Kong to reforming public revenue to the max.