The second blog in Centre for Cities' TfL series shows that while Hong Kong’s mass transit operator may not be the answer to TfL’s short-term funding issues, it needs to be considered in the long-term.
Hong Kong’s Mass Transit Railway (MTR) is one of the few mass transit systems in the world that typically generates profits. Although, like operators across the globe, it made losses after the pandemic hit in 2020, its profitability recovered in the following year even with ridership below the levels observed in previous years.
So, how did MTR balance its financial situation so quickly when other global cities, including London, continue to struggle?
At first sight, the urban form of Hong Kong can be seen as the explanation for its swift recovery. It is one of the densest places in the world, which provides its transport system with a massive number of users (paying for tickets) around each station. Previous Centre for Cities research supports this by showing that Hong Kong has more commuters than London, even if the network is roughly half the size.
However, the observed differences cannot be fully explained by different density profiles. As illustrated in the first blog of this series, MTR is significantly less reliant on fares than TfL – they account for around 37 per cent of Hong Kong’s funding, compared to 70 per cent in London. This means that MTR is able to raise additional revenue from other sources.
The existing model in Hong Kong allows MTR to develop the land around new stations, bringing financial benefits to the system. The government of Hong Kong grants the development rights of the land at pre-railway values, which allows MTR to tender the land for over-station developments and receive either a part of the property sale value or some rental income.
In Hong Kong in 2019, for every pound collected from tickets, there was £0.6 collected from either property rental and management or commercial businesses in stations. This does not include property revenues outside Hong Kong.[1] This allows MTR to operate and expand without having government subsidies and provide relatively low fares – monthly passes cost the equivalent of between £42 and £66.
[1] That information is included in the category “Mainland China and international railway, property rental and management subsidiaries”, which accounts for 53 per cent of all revenue in 2019.
Recently, TfL announced it aims to develop three over-stations sites (Paddington, Southwark and Bank), which would “build the homes and commercial spaces the city needs, while also generating vital revenue that reduces TfL’s reliance on fares income”. This is welcome news but the Mayor of London and TfL will need further powers to make this approach the rule and not the exception.
For TfL to become more like MTR, changes related to development rights are needed. The Centre for Cities previously recommended a similar model for areas in the greenbelt. It consisted in releasing parts of the greenbelt next to rail stations and giving the rights to develop the land to the owners of the relevant stations, which would include TfL. Even in the areas that would not be under TfL (e.g. National Rail stations), London’s local government could benefit financially from the plan. Centre for Cities also suggested the introduction of a 20 per cent Land Development Charge (market prices) that would be channelled to a newly-created Green Development Corporation (GDC), inspired by the experience of the redevelopment of London’s Docklands, with full planning powers over the newly-released land. Part of that Land Development Charge – which could raise between £66bn and £82.5bn – could be used to fund public transit.
If central and local governments want TfL to fully replicate the “Hong Kong model”, this approach should be expanded in a way so that TfL gets the development rights in the land around or above stations (existing and new ones).
This model can be attractive to TfL as it may not require government subsidies or increases in local taxation. Nevertheless, its implementation would require a long period of time (MTR started in 1980) to set the institutional framework, identify the land, and develop the sites. At the moment, TfL needs quicker ways of raising revenue.
Even if the Hong Kong model is not the best solution to balance TfL’s budget in the next couple of years, it could be seen as a potential option for raising funds to develop new projects like Crossrail 2 or the Bakerloo line expansion.
This blog is part of the TfL series, where the Centre for Cities explores different Mass Transit System funding models around the globe. The final piece of research of the series will set a range of policy recommendations, based on the models analysed.
A short blog series examining different Mass Transit System funding models from around the globe.
The first blog in Centre for Cities' TfL series looks at how the pandemic has affected London’s transport network, and why TfL should move away from a fare-driven funding model.
The third blog in Centre for Cities' TfL series explores how Paris uses local payroll taxes to fund its public transport network.
The fourth blog in Centre for Cities' TfL series looks at Singapore's urban mobility model which shows that congestion charging and ULEZ are not the only policies available to simultaneously raise revenue and reduce car use.
The fifth and final blog in Centre for Cities' TfL series draws inspiration from New York’s Metropolitan Transportation Authority.
Analyst Guilherme Rodrigues explains how following other cities’ examples could help TfL diversify its revenue sources.
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