Co-written with Jonathan Haggerty
It seems like nearly every time ridesharing is brought up in New York City, someone will inevitably bring up the dramatic decline in taxi medallion prices. Dubbed the “Uber effect” by American Enterprise Institute scholar Mark Perry, the theory is that increased competition from companies like Uber and Lyft has eroded the legal monopoly that taxi medallion holders previously exerted in the on-demand automobile transport market.
By competing against this once isolated market, transportation network companies like Uber and Lyft have made these medallions significantly less valuable. One proxy for this decline can be found in share prices of Medallion Financial Corp., a publicly traded consumer and commercial lending firm that is a major creditor in the taxi medallion lending business. When looking at the period from 2013 to 2016, the decline certainly looks precipitous:
This may not be the complete story, however. After all, the stock price may vary depending both on the specific quality of loans the company issues, its underlying cost of capital and on general market confidence. Furthermore, the stock price doesn’t make any distinction across the numerous categories of medallion ownership.
To the extent that news reports cite changes in the actual market value of a medallion, they usually do so anecdotally, comparing the peak value in 2014 of more than $1 million to the current trough of under $300,000.
Given the clamor and potential policy implications, a more detailed analysis seemed appropriate. We examined medallion price trends over time and differentiated across the different medallion categories. NYC’s Taxi and Limousine Commission compiles monthly records of medallion transactions for each of six categories: Individual unrestricted, handicap accessible and fuel alternative, as well as corporate (minifleet) unrestricted, accessible and fuel alternative. Unrestricted cabs are the general purpose yellow taxis that everyone thinks of, handicap accessible are cabs specially retrofitted to allow persons with disabilities easier access, and fuel alternative cabs have specific fuel requirements titled towards being more environmentally friendly.
The primary breakdown is between individual and minifleet. Where an individual medallion owner has to spend a minimum number of hours per year (usually the equivalent of 200 separate nine-hour shifts) driving the cab, a minifleet owner can lease out taxis to other drivers.
By far, the largest categories are the individual and minifleet unlimited licenses, and the general decline here tracks fairly well with Medallion Financial’s stock price:
Immediately we can see that there is a clear and substantial price premium for minifleet licenses over individual licenses. This makes sense intuitively. A license with strict personal driving requirements is going to be more restrictive on your time, and less valuable, than one without. Another factor that stands out is how messy the data is, with transfers at price points both significantly cheaper and significantly more expensive than the average in any given month. Unfortunately, it’s difficult to tell whether this was an issue with the NYC taxi commission’s data recording or whether these were due to external factors, like family transfer discounts or business liquidations.
However, it is important to recognize that the towering price high in 2014 was spurred partially by fleet owners borrowing against the rising value of the medallions they already owned to finance further purchases. So while medallion prices are undoubtedly dropping, it may look worse because prices were experiencing a bit of a bubble in the first place. Indeed, a former head of the TLC stated in April “the (taxi) industry’s performance has not been as bad as the decline in medallion prices would suggest.” In other words, don’t mistake the price of medallions with the health of the industry overall.
Another obvious factor here is the decrease in liquidity since 2014. One sale in March and two in February of 2017 means one of two things are happening: either medallion owners can’t find buyers, or owners are holding on because they view a price rise or stabilization on the horizon. The prospect of a bailout could keep buoying prices, while easing restrictions on medallion transfers has increased the potential pool of buyers.
Unfortunately, there were so few alternative fuel licenses released or transferred that there was not much data to analyze. Handicap accessible licenses, however, had a more interesting story to tell:
Here you can see that the handicap accessible licenses have actually appreciated in value over the same timeframe. (If the graph looks funky with the straight lines, that’s due to the initial auctions where these licenses were sold.) This is not an apples-to-apples comparison, because we have so little data post-2014, but the total lack of sales (for minifleet accessible) may be an indication that it’s not an asset worth liquidating.
One reason for this may be that Uber partners with cab drivers who own these handicap accessible licenses to help provide rides on their platform to users with disabilities. It seems intuitive then, that these specific medallions would continue to hold value.
But perhaps the most important factor in all this is the total size of the market. The market share of taxis has shrunk with the emergence of Uber and Lyft, but the overall size of the market is larger today:
Note that taxi trip volume has begun to level out in late 2016 and 2017. Taxis can coexist with TNCs in some markets, especially in densely populated cities where the value of a street hail is higher.
Put all of this together, and it appears the reports of taxi death have been greatly exaggerated. While some form of the Uber effect certainly exists, insofar as general medallion prices are concerned, the decline is not quite as precipitous as some have reported and taxi ride volume is not disappearing overnight. Furthermore, the future price of all these medallions likely will be more dependent on the success or failure of autonomous vehicles than on competition from ridesharing services from here on out.
The data we compiled for the piece can be found here.
Image by Cameris