Licensing Ruined the Taxi Industry. Are Apartments Next?

By Mike Chopowick, July 10, 2015

Regulated taxi services are a major mode of transportation in most major cities around the world. Recently, unregulated ride-sharing services such as Uber have entered the game, grabbing a growing share of customers from traditional taxis.

Why? There is a perception that the quality and pricing of regulated taxi services is unsatisfactory. A public consultation in Toronto in 2014 opened the floodgates of customer complaints about reliability, high prices, safety, service and competition of regulated taxi services. You can read all the comments here: www.toronto.ca/taxireview

Much of these problems are not the fault of the taxi drivers and owners. Most problems are caused by the municipal licensing system that dictates every aspect of taxi services.

Why is Uber so successful? The answer is mostly its freedom to operate outside of Toronto’s byzantine, unfair and costly licensing system. For those unfamiliar with taxi licensing, here is a summary:

Scarcity
The first problem with municipal taxi licensing is the monopoly caused by scarcity. There are only 4,849 licensed taxi vehicles in Toronto. There can be no more. City Hall controls the number of licenses, and has, in its wisdom, decided that for a city of 2.6 million people, 4,849 taxis are enough. Based on how many people I know who now use Uber, apparently they were wrong.

Long lines of people waiting for a limited supply licensed taxis are a common sight

Long lines of people waiting for a limited supply licensed taxis are a common sight

Pricing
Think the price of a taxi is too high? Blame City Hall for this. Every aspect of what a taxi charges a customer is regulated by the city, from the pick-up fee, the distance fee and waiting time. Fares are metered and non-negotiable. A licensed taxi driver cannot charge less than the metered rate set by the city.

Hop in a Licensed Toronto taxi, and it immediately costs you $4.25. After a short 5 km ride, you’re up to $13. All thanks to prices regulated by the city. Meanwhile, the same ride in Uber will cost you 30% to 40% less.

Licensing creates a complicated system of drivers, lessors, agents, dispatchers, brokerages, maintenance garages and municipal license staff. Whatever you are paying a taxi driver, you can be sure that the actual driver sees very little of that payment.

Quality
Don’t envy drivers of regulated taxis in Toronto. They have a dangerous, grueling job, made difficult complying with onerous municipal licensing requirements. They may have to drive long hours just to earn a basic living. This may contribute to aggressive driving and safety shortcuts to ensure they can make ends meet.

How Licensing Would Ruin Rental Housing
Now think of Toronto’s rental housing stock, which houses half of the city’s population of 2.6 million. Then imagine city hall’s licensing staff getting their hands on it. Looking at the taxi industry, we could expect:

  • Higher rents charged to tenants to due to licensing fees and the costs of meeting onerous, redundant requirements
  • Higher taxes to pay for new municipal licensing staff, inspections, and enforcement
  • Long waiting lists of tenants waiting to apply for a limited supply of “licensed” apartments
  • The emergence of a shady underground of unlicensed, substandard rental units where tenants rights are routinely ignored

Rental Apartments: The Most Over-Regulated Business
Rental housing in Ontario is already one of the most heavily regulated businesses in North America. There are building maintenance requirements under the Residential Tenancies Act, the Building Code, Fire Code, and municipal property standard by-laws.

Enforcement is carried out by the Landlord Tenant Board, the Ministry of Housing Investigations and Enforcement Unit, and city by-law officers under the Municipal Act. Another layer added by licensing is simply costly duplication of red tape.

The business of providing high quality (and unlicensed!) rental apartments is flourishing in Ontario

The business of providing high quality (and unlicensed!) rental apartments is flourishing in Ontario

In addition, the rental housing industry itself has taken the initiative to set quality assurance standards. Over 100,000 Ontario rental units are now enrolled in FRPO’s Certified Rental Building (CRB) program, which requires buildings to meet over 40 standards of practice, all independently audited by JD Power & Associates.

Licensing has no place in rental housing
Any debate about licensing rental apartments should consider what licensing has done to the taxi industry, and compare it to lower-priced, more plentiful and high quality unlicensed ride-sharing services such as Uber.

Unless we want apartments to be plagued by higher costs, waiting lists and meagre quality, municipal licensing has no place in rental housing. And come to think of it, it probably has no place in the taxi industry either.