"But a taxi medallion is one investment that keeps going up in value: Two of them recently sold for a record $1 million each. A taxi medallion gives the bearer the right to pick up rides for hire. It turns out it’s also a great investment vehicle. When New York cab driver Sushil Maggoo bought his in 2003, for example, he paid around $215,000. Now, it’s worth almost $700,000. The value of the medallion more than tripled in just eight years. “It’s unbelievable,” Maggoo says. … An analysis by Bloomberg News shows individual driver medallions have increased in value by more than 1,000 percent* since 1980. Fleet medallions are also up about the same amount."*
I don’t understand how (or why) taxi medallions have gone up so much. I know it will be compared to the housing market, but it seems a bit different. First, there is the magnitude of the increase, and second, the only reason to have a medallion is to enable a fairly stable income (drive a taxi). As far as I understand, they are not bought and sold exclusively because of their value.
If the income generated from the medallion has not appreciably increased (I assume fares have not increased by that much), then why have the medallion prices increased so much?
How can taxi drivers afford the payments on their own medallions when fares have not increased correspondingly?
Isn’t the market controlled by the city government? And there are only a certain number of medallions allowed? And if you want to be a taxi, you have to have one? And there is a great demand for taxi services?
Seems like a textbook supply & demand example to me, with the supply artificially held down by the government.
I suspect its because the number of medallions is more or less fixed. So why fairs have stayed steady (they’re regulated), the number fairs a cabby can pick up in a day has greatly increased, since the cabbys per rider ratio has sky rocketed. From NYC.gov
So almost no increase in authorized cabs since 1940.
According to the numbers on wikipedia, 13,000 cabs picked up a billion in fairs in 2006. So like 100,000 bucks a year. Then you have to pay for gas and repairs and such. So at least ten years to get your money back. But then, the medallion is pretty much yours for life, and when you retire you can turn around a sell it to the next guy for as much as you paid or more.
So I guess it makes sense to go as high as 700k. I think most of the cabbies work under businesses that own a bunch of medallions, presumably because coming up with 700k is not easy for the average cabbie, even if it is a good investment.
That’s like saying you’re close to being a millionaire because you just took out a $900,000 mortgage.
(In any case, most cabbies rent their cars from cab companies who own the medallions. There is separate category of medallions for the small number of owner-operators, which are cheaper.)
The reason they are ridiculously expensive is because the city creates an artificial demand by strictly limiting the number of medallions issued.
There are local financial services companies that specialize in financing taxi medallions and vendor licenses and whatnot. It’s a weird little world.
While ridership has increased almost exponentially, the number of licensed cabs has remained steady.
One way the market is handled is by something called “car service.” I’m not even sure how that works, since I’m West Coast, but I know it’s like taxicabs.
And then there are gypsy cabs, illegal cabs that fly under the radar until they get caught.
~VOW
The gist of the story is this: The number of medallions has been fixed by law for many decades. Since the 1930s, I think. Yet the demand for taxi service has gone up substantially. So each medallion represents the capability of earning lot more business than it used to, and even more importantly, it presents the promise of even more business as far into the future as anybody can see. Because demand keeps going up, but supply (which requires political decisions to change) remains limited.
By the way, Candyman74, one thing the story pointed out is that the taxi drivers themselves don’t usually own the medallions. The taxi companies do, and they lease the cars to the drivers.
A medallion is required to pick people up off the sidewalk. If you call somebody to pick you up at your house, or wherever, no medallion is required. Companies that do that in New York are called car services. In most cities taxis do both things.
It sounds like this whole model would crash if the city simply disallowed a secondary market for the medallions and charged an annual fee instead. They could still limit the number of taxis and give first priority to those already licensed. I don’t really see why they have a medallion system at all. The city could make more if they just did straightforward licensing.
To provide a bit more color, car services generally run a nicer class of car–luxury sedans and up–and the interiors tend to be nicer and in better condition than the average taxi. (I did once catch a hack in a brand new hybrid Camry–nicest cab I’ve ever been in.) They’re more expensive. They’re also not supposed to pick you up on the street, but stand on a NYC corner when cabs are in short supply and you’ll get plenty of them trying to pick you up illegally. Apparently you have to negotiate the fare up front, but I don’t know because I’ve never taken one–I almost never carry cash, and they don’t have credit card readers.
There’s apparently a pushto allow car services (aka “livery cabs”) to pick up fares from the street in the boroughs and upper Manhattan, due to the paucity of yellow taxis in those areas.
If you figure it out, the total value of the medallions is in the billions of dollars. That means that a change like that will come in over someone’s cold dead body. I suspect for some independent cab drivers, the medallion is their retirement plan. They can sell their medallion and retire to Florida.
Down here in the Washington, DC area, lots of cabs are old beater police cars (mostly Crown Victorias) that the force didn’t want anymore. They’re powerful and roomy, but not so nice to look at. There are some minivan cabs as well as a growing number of hybrid cabs.
They may not be sold exclusively because of their value, but resale value certainly enters into the price that someone’s willing to pay!
Sports team franchises work in a similar way; even if your team loses money every year, it’s still possible that the value of the team is increasing enough to make it profitable when you sell. Same thing with farmland (although I realise that you didn’t want to compare it with real estate).
Starting in a couple of years, the taxicabs in New York City are going to be this Nissan vehicle. They had a competition for a custom vehicle to be given an exclusive contract to supply all medallion cabs and that Nissan won.
(Sorry it took me a while to respond, was at work.)
One thing that still does not make sense to me is the price increase over time. People have mentioned increased ridership, but that isn’t cutting it for me.
The price more than tripled since 2003. I am going to make a big fat assumption that ridership did not increase anywhere near 3 times since 2003. So either 8 years ago the taxi drivers got to bring home a larger percent of their fares, or recent taxi cab drivers now are having to live on way slimmer margins (because more goes to the medallion loan).
