To fare, or not to fare.
A recent change of mind on the subject of transit pricing
I used to think that a universal, single-tier fare for transit was a good thing.
Heck, I also thought that abolishing fares on transit altogether would be the best thing ever.
This newsletter explains why my thinking has changed on this recently.
When I first moved to Toronto, I quickly learned a thing about mobility options here.
Toronto and its surrounding municipalities are designed around a primarily car-oriented mobility network. High quality transit and sidewalks for walking are secondary, and bicycle networks are a distant, distant third.
What my Euro-brain really saw was this: an urban milieu that forces you to own a car, or else be severely restricted in your choice of life opportunities. On top of this imposition upon personal freedom, the real beneficiaries of this Ponzi-scheme are the car companies who have wholesale made the car as necessary as shelter, and they get everyone else to pay for all the infrastructure that it runs on. The parking, the roads, the highways, the certifications, the insurance, the accidents… everything.
Huh. This must be the bait-n-switch of the century, truly.
So, owning a car is essential. If you don’t have a car, you have to walk, or worse, rely on … transit.
Well, I was one of those transit-dependent people.
While riding transit, I distinctly remember getting the feeling that many people rode not because they wanted to, but because they had to. Many riders who use transit as their primary mode of travel can’t afford to own a car for whatever reason. Secondly, I learned that poor urban planning led to people living far away from their jobs. If the commute was long in a car, you could bet it was 3x longer by transit.
As usual, the people with lesser means were getting a raw deal on urban mobility in Toronto.
Currently, Toronto transit operates on a single-tier fare. In other words, there is only one price to take a trip from any two points on the network. Whether you’re riding 5 stops or 25 stops, it all comes at the reasonable price of $3.25 (2021).
The benefits of single-tier pricing is that it gives everyone equal access to the full network. There is no discrimination in price or service. The benefit is obvious…
And then there’s abolishing fees and making all transit free for everyone, which sounds like a pipe dream. Yet, there seems to be a way to make this happen, as the poster-child examples of Tallinn, Estonia and Luxembourg demonstrate. If we could make transit “free”, just like how sidewalks are free, we would truly be incentivizing all to leave their cars and come join the walking/transit revolution!
Turns out, things don’t quite work this way.
The reason why it doesn’t work like this comes down to two things:
rules of complexity, and
human behaviour
Ignore the feedback loops of a complex system at your own peril
I read a book called Toronto Sprawls, which documents how Toronto became the sprawling city that it is today. The book begins in a time where Toronto was, surprisingly, one of the most compact and densely populated cities in North America. This was achieved through privately-owned transit. My first thought was that this is crazy: how is it that a private transit company 100 years ago was achieving what a publicly-run agency today cannot do?
It’s actually hilariously simple. Private transit companies only built transit where they knew that critical ridership existed, and they did not spend money expanding too far away from the core. This curbed capital expenditures and kept the network naturally compact. On top of that, it encouraged home builders to densify around the existing network. As a result, the transit operators saw ridership grow, without needing to make any extravagant capital investments themselves. This allowed them to save the surplus towards the next capital project, either improving existing service or expanding the network.
In other words, these companies responded to real feedback loops in the environment that informed their decision-making and optimization. Their desire to run a profitable service actually improved the urbanism around it, which in turn made the service better over time.
Making transit free would disable this critical feedback loop that enabled the flywheel effect to take off.
Further, the story goes that the municipality had a messed-up agenda (won’t cover the details here but it was rooted in Christian puritanical and colonial beliefs) and wanted badly to expand their footprint, but the private transit owners refused. So the government bought the private operators out and were now free to expand the network to wherever they wanted it to go. And expand they did - whether it made economic sense or not. Whether people wanted to move out there, or not.
What they didn’t anticipate were the undesirable consequences of disconnecting transit from the realities of the complex system it was meant to interact with.
Over the course of decades, Toronto’s transit transformed from an urban and fiscally responsible service to a suburban, overstretched yet underserved commuter service. All because it stopped responding to real feedback from the complex urban environment, instead following the wishful thinking of a few power brokers with the wrong motives.
How human behaviour affects choice and preference
Human behaviour is an underestimated factor that no economic model accounts for sufficiently. For example: If people were always attracted to the cheapest options, Apple would be out of business already.
1. Race to the top, not the bottom
In fact, the dominance of car culture proves that we are willing to pay a great deal for perceived convenience, which we do in spades as individuals and as a society in money, resources, and voluntary cultural conditioning.
Yet, the knee-jerk reactions towards cheapness continues to dominate the discourse in other transportation modes, such as transit and bike infrastructure.
So, about Tallinn… how did their “free transit” program work out for them? Their goal was to subsidize transit to encourage people to leave their cars at home. And guess what: it didn’t work. Ridership went up by 14%, but that was fuelled mostly by people who were already walking. The campaign did alienate drivers, which further repelled them from considering transit as a primary mode of travel.
The data from Tallinn is odd, but not surprising. Fare price is not the big issue in encouraging ridership.
Rather, we need regular reminders that some of the best transit systems in the world are run like Swiss clockwork, and it takes money and effort to provide such high quality service. People are clearly willing to pay for good service, as demonstrated in places like Hong Kong, Japan, Singapore, and the Netherlands. They even prove the appetite for things like tiered or variable fares, based on zones or distance.
The lesson here is: When you provide Apple-level experiences on transit systems, folks will go out of their way to make transit an integral part of their everyday lives.
2. Single-tier fare remains unfair and suboptimal
Fixed pricing on a transit network may benefit lower income households, but only to a certain extent. This is because they’re competing with other actors with greater means of capitalizing on transit proximity.
Good transit connectivity attracts higher income earners who are more than happy to pay real estate premiums for better access and proximity to transit. This incrementally pushes poorer households further away, which costs them additionally in commute time and quality of life. On top of that, affluent households may also retain car ownership, making transit just one of many options for them. They will still opt to live close to transit, “just in case”, even though it’s not a necessity for them. Meanwhile, the people who rely on transit the most have less options to find housing close to transit, due to scarcity.
Income inequality only seems to be growing nowadays. One way to ameliorate the growing divide of rich and poor is to try to eliminate scarcity. To maximize benefits for the most disenfranchised groups of society, transit must be followed up with land use optimization. Flood the areas around higher order transit with walkable density, minimize parking built and required, and have the development benefits pay for building/upgrading transit.
For this reason alone, a single-tier fare does not lessen the negative effects of income inequality, sadly.
In addition, a single-tier fare for a transit network as sprawled as Toronto’s subway system encourages “commuter-style” user patterns from bedroom communities to the downtown core, creating undue stress on the system twice a day, always in only one direction. Commuter transit is highly inefficient as there’s no way to capitalize on return trips. The flat fare ensures that people look for other price signals, which often will be where the cheaper real estate is. And the cheaper real estate will almost always be at the very end of the line, and beyond.
So, not only do single-tier fares fail to significantly help lower income populations meet their mobility needs, it also sends signals to users that make them settle in suboptimal ways that cause system stresses and overloads.
Dang.
A summary of things that made me change my mind.
Learning about the history of Toronto’s development made me realize how much things were manipulated into what they are today.
I never would have guessed at the deliberate action by government to promote sprawl, or the effectiveness of a privately-owned transit line.
Learning more about human behaviour and incentive design forced me to face that sadly, we often don’t make as rational choices as we’d like.
Free doesn’t necessarily translate to attraction. In fact, it can come off as cheap, and even unfair.
We are happy to pay a premium for something, as long as we perceive there to be a fair exchange of value.
Paying for transit in the Netherlands wasn’t always cheap, but I knew that in terms of time and convenience it was still competitive with the car. And in terms of experience it was much superior (despite driving being legitimately amazing in the NL)
The same dynamics that regulate the success of a company also work when applied to transit and urbanism. These are interconnected, complex systems at work.
The interacting force between provider and customer is a powerful feedback loop, not to be underestimated.
Being profitable matters. This is also another strong feedback loop.
Transit cannot be disconnected from land use realities. The two are intertwined and feed off one another.
How confident am I about this change of mind on transit fares? About 80%.
Do you have an opinion about transit fares? Please comment! 💬
Alternatively, what have you changed your mind about lately? I’d love to hear it. 🧠
Until next week,
✌️stay safe and stay curious. — F
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PS. Ooh, remember the newsletter two weeks ago on “loopholes for avoiding waste”? Well, I decided to turn it into an essay to publish on my website! I polished it up and restructured a bit before publishing. It’s now called The Things I Do To Avoid Waste.
Really enjoyed this essay, especially this conclusion: "Transit cannot be disconnected from land use realities. The two are intertwined and feed off one another." I totally agree and it should be mandatory learning on day one for anyone working on transport policy.
One element I would ponder is the importance of profitability. If we think that there are wider economic (including environmental) benefits from public transport provision, then some level of subsidy should be optimal. Of course maximum taxpayer value should always be sought, including in the interaction with land use.
Another problem with sprawling transit systems is that it becomes more difficult to provide a "metro" style service to most of the route due to capacity constraints - medium-long distance services (primarily used by wealthier commuters) cannibalise capacity that could otherwise be used more intensely nearer the core (serving more people in a greater range of economic circs). And because wealthier commuters tend to be the most profitable customers (to some degree they are in a distress purchase position as they are less likely to be able to switch to cycling/walking/bus, and driving into a major city is typically unattractive) they tend to command more of the managerial focus from the service provider to maximise revenue (I expect competing with the WFH may make this even more true).
Excellent analysis & read! Well done, Fei!