Getting a fare deal: The economics of Toronto's taxi industry
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To some, city council’s decision to overhaul the taxi industry was an act of social justice that will lift taxi drivers out of “slave” like conditions. To others, it was “attack on the middle class.”
In an effort to cut through the rhetoric and understand the taxi plate market, Metro requested data on taxi plate sales from city staff and received the value of every licence transfer since January 1, 2000, and charted the data.
We contacted Ryerson University economics professor Derek Stacey, gave him the data and asked him how the city’s regulatory changes will financially affect the players in the taxi industry.
The reform council approved mandates that by July 2024, all taxi licences plates must be converted to Toronto Taxi Licences (TTL), which will mean owners cannot merely lease or rent out the licence for income, as many do now, and licence holders must drive the taxi themselves.
Today, corporations and people that never drive the cabs they own licences for own the vast majority of the city’s 3,451 standard licences.
According to city data, 117 people have bought plates for $250,000 or more.
Stacey says taxi industry participants appear to have anticipated that the changes will depress prices as the city’s review progressed, because the average sale price of a standard license fell by approximately $70,000 from 2012 to 2013 —— almost a 30 per cent decline —— when in previous years the average price was steadily increasing.
However, the extent of the decline in value of standard plates over the next 10 years as they are sold and converted to TTLs is difficult to determine, according to Stacey.
Today, the Toronto taxi industry generates an estimated $1.62 million in revenue a day, according to city staff. The TTL will be used to generate revenue the same way as a standard licence does, but instead of the revenue going to an owner, an agent and the drivers, most would go to the drivers, which suggests that the plates will still be valuable, he said.
However, plate sellers will find fewer buyers when wealthier investors, who aren’t interested in driving, can no longer purchase licences.
“You would have to find a buyer who’s willing to drive it and has deep enough pockets to buy it. That’s where we might start to see the decline in value,” he said.
The other changes the city voted for — adding more cabs to the street and mandating that taxis are wheelchair accessible — will contribute to lowering the value of plates.
Giving plate owners 10 years to make the change lessens the financial impact, he said, because they will still be able to earn from licensing a plate for up to 10 years. Lease rates reported to the city average $1,250, a month, but drivers told city staff they pay up to $2,400.
In the ‘80s and ‘90s, city staff estimated the average annual rate of return, based on average plate value and average lease rates, was approximately an average of 13 per cent. Without reliable data on lease rates, that calculation can’t be done today.
Interestingly, plate sale data we received showed “a high degree of price dispersion,” said Stacey.
In other words, in the same year people are selling the same kind of licence for vastly different prices. In the same years where some licences were selling for more than $300,000, others were selling for less than $100,000.
There are a few potential explanations: such as plates sold between family members where market value isn’t the primary concern.
Another factor may be that the price a plate sold for isn’t always the price reported to the city.
Owner-driver Yusuf Farooqi told Metro he bought his plate for $55,000 more than the price that was reported to the city. When asked to explain the discrepancy, he said it’s a common occurrence in the Toronto taxi industry.
“When you buy a plate for $150,000, the person who is selling, he doesn’t give you a receipt for $155,000, he gives you a $100,000 receipt,” he said. “I don’t know why that is, I didn’t ask. I just wanted to have a business."
Stacey said that is reminiscent of the kind of tax evasion that’s occurred in the used-car industry.
“Although there are rules that prevent people from doing that with cars now, maybe they don’t look too closely at these sales,” he said.
This graph, based on data from the City of Toronto, shows the value of taxi licence sales over time. The green line is the average values of annual sales, the orange line is the average values adjusted for inflation to 2014 dollars, and the dots are the prices of actual sales, in the unadjusted dollars.
Please note, in recent years sales of plates for nominal amounts have become a common way for family members to transfer plates. These transfers are unrelated to the market value of the plate and skew the data, so the have been excluded from the data between 2000 and 2014.
Councillors on the reform
Some councillors spoke passionately about the reform at last month's city council meeting.
Coun. Pam McConnell, who brought the motion to pass the reforms, called shift drivers “slaves” to absentee plate owners, who sometimes ended a 12-hour shift with as a little as five cents in their pocket, she said.
Coun. David Shiner told council he loves a good investment, but wouldn’t buy a taxi plate because he’d “feel too guilty” making money “on the backs of the poor people who have to work too hard to make that money.”
Coun. Janet Davis told Metro she believes council’s decision was fair and balanced, because it gives plate owners 10 years to make the change — and when they do sell their plates, they will still hold significant value.
As for the people who’ve taken out loans to buy their plate, Davis said they have 10 years to recover their costs before they can decide to earn money by driving their taxi or selling the plate.
Deputy Mayor Norm Kelly was one of the councillors who voted against the reform.
He warned against making changes that may land the city in court, and suggested delaying changes long enough to lobby the provincial government for a change in law that would allow the city itself to benefit financially from the market for taxi plates.
He also advocated taking the finances of the current plate owners into account.
“Their plates have value and the way this licencing system is proposed, their plates will lose their value,” he said.
Owner's point of view
Joel and Judi Barr wrote to Metro asking a story to draw attention to what they see as the damage done by council’s “Robin-Hood-esque reform.”
“I’m not a rich man. I’m a very middle class man with middle-class money. I don’t have extra money to invest in RRSPs. I put my money into my business,” he said. “That’s the way the system’s been since 1963. The city set up the rules, the city allowed plates to be bought on the market and sold on the market. We were just going by the rules.”
Barr said he bought a licence for $37,000 in 1980, a lot of money at the time, and he drives a cab with two part-time shift drivers.
The family owns five plates. Joel's father owns three, Judi owns one and they lease them out. The total impact on the family’s finances is “devastating,” he said.
If the plan had been grandfathered for the current plate owners' lifetimes, or 40 to 50 years, the impact wouldn’t have been a measured, reasonable response that wouldn’t have affected them so severely. That was the plan city staff had proposed, but councillors voted to make the change occur within 10 years.
The Barrs were offended by the image of plate owners city councillors railed against at the meeting — saying that they’re rich people in Florida sipping pina coladas making money off the backs of poor drivers.
“If you’ve been in anything for 40 years, invested your life in it, after that length of time, we all want to be in Florida laying on the beach. We just went by the system set up by the city,” he said.
The shift drivers who pay to drive his cab aren’t abused, he said. “You don’t see us grabbing a guy by the scruff of his neck and putting him in a car, and say you drive this cab. No one’s forcing them.”
Many people spent much more on their plates and borrowed a lot of money against their houses or from people they know to pay for them, said Joel.
Yusuf Farooqi bought his licence in 2006 for $155,000, he said. He took out a private loan at 12 per cent interest, and only recently paid it off.
“They are ruining our lives,” Farooqi said. “I thought I was going to do business with this plate. I thought I was going to get another plate. It would be my retirement in the future —I would rent it and I wouldn’t have to go to some government assistance.”
“I just wanted to improve, as Canada is a land of opportunity,” Farooqi said. “Now, they don’t want us as a businessman, just as a driver.”
Shift drivers on board with reform
Most shift drivers support the reforms. In November, about 2,000 licenced drivers attended a city meeting at AllStream Centre after organizers passed around petitions and formed groups in support of the plan. It was the largest public consultation meeting the city has ever held.
They are the drivers who pay up front to drive and have long complained about working long hours that often leave them coming home with less than the equivalent of minimum wage.
“I think this is a historic moment, when the industry is back in the hands of the people who are working 12 hours a day. The drivers have the industry back in their hands,” said Sajid Mughal, president of the iTaxiworkers Association, which represents some drivers, told the Toronto Star after the reforms were approved.
According to a report commissioned by the city, the average full-time shift driver makes an income of about $31,000 a year.