Overpriced real estate and its underpriced access

Last week Andrea Bernstein interviewed Alex Marshall of the Regional Plan Association about the profitability of Jay Walder’s new employer. After only 32 years of operation, Hong Kong’s Mass Transit Railway is able to offer Walder a million dollars a year while constructing a large system expansion, all without direct financial subsidies from the government. Walder’s old employer, our own Metropolitan Transportation Authority, gets hundreds of millions of dollars a year from the government for operating costs, and billions for capital programs, and it still has been required to cut service and borrow billions to balance its budget. It could barely afford to pay Walder $300,000 a year, and some critics have demanded that that salary be reduced for the next MTA chair.

The MTR and the MTA are the largest transit providers in Hong Kong and New York, respectively, two very large, fairly dense cities, so why the difference in their financial shape? That’s what Bernstein asked Marshall, and Marshall responded that the Hong Kong MTR makes money on real estate and uses that money to subsidize its transit facilities.

On the face of it this sounds a little odd; you could equally imagine the government running a frozen yogurt stand and using the profits to fund interplanetary exploration. But transportation and real estate are more directly connected than that. The real estate cry of “location, location, location!” is really about access. Housing properties with access to jobs, shopping and entertainment command higher prices and rents. Workplaces that are convenient to housing can attract better workers, and thus pay higher rents to property owners. Commercial properties that are on the way from home to work also attract higher rents.