Taxi Industry offers up "alternative" to Uber, Lyft

Source: https://www.videezy.com/free-video/taxi

Update: Later on the same day as writing this, the ministry of transportation released their report; saying they would evaluate introducing ride-hailing by Fall 2019 (about 18 months away). read the press release here.

The Province (newspaper) released today an exclusive that the taxi industry in BC is pushing the government for an alternative to Uber and Lyft. This alternative is a "made in BC solution", which allows British Columbians to have a ride share service (Kater), which operates at taxi prices.

The article can be found here.

I will attempt to keep my sarcasm to a minimum.

Here in BC, many people want Uber and Lyft to be present as this will increase competition in the industry and thus help lower the price of requesting a ride (taxi or otherwise). The taxi industry is clearly against this because it will severely erode their monopoly-level profits which they have been able to hold on to for so long. Case in point, since the introduction of Uber the price of a taxi medallion in NYC has collapsed from a height of $1.3 million to just under $200,000 ... we can infer that if individuals were willing to spend $1.3 million for the right to operate a taxi, the benefit received must have been at least equivalent if not more.

The comedy is that based off of the document presented, their view seems to be that we would just like a more convenient way to hail our taxi's (via app lets say) ... Thus by introducing this new hailing method and service (at current taxi rates), they satisfy the problem while maintaining their extra normal profits.

We do not just want an easier way to request a ride. we want to dismantle the ridiculous market power that the taxi-industry has been able to carve out for itself, introduce competition to the market, allowing market forces to determine the price of a ride and the service provided.

To be honest I was standing in line to buy coffee as I read this article. I had to do everything I could to keep myself from laughing. Does the taxi-industry seriously believe this is a legitimate proposal to satisfy our demands? Or are they staring down the barrel and offering any last-ditch effort they can to save themselves.

what are your thoughts? feel free to comment below.

The Impact of Changing House Prices on GDP in BC

Source: https://www.armstrongeconomics.com/markets-by-sector/real_estate/real-estate-in-decline/

Yesterday (11th of July 2018) the Bank of Canada continued to increase interest rates, as many expected. 

Since the increase in the interest rate, the media coverage has been flooded with conversation around the impact this will have on homeowners. Specifically, it is well presented that Canadian households currently have a pile of debt and will have trouble continuing to service their debt if their payments or obligations increased. you can read a Bank of Canada article on the subject here.

Building off of these discussions, although quite separate, I began to wonder. Here in BC the Finance, Insurance and Real Estate (FIRE) industry make up essentially 25% of our provincial GDP.

As governments continue to engage in policies which aim to make housing more affordable (decrease or slow price growth) and as the Bank of Canada continues its upward movement of interest rates (decreasing the demand and supply of real estate); we have some serious headwinds on house price growth. The question of interest then: Given the size of the FIRE industry in BC, for some change in the house price, how does this filter through to impact our provincial level of output?

To answer this I conducted a simple time-series analysis which allowed me to jointly model both house prices (Teranet national bank composite house price index for BC) as well as the provincial GDP (Statistics Canada).

In order to ensure stationarity, these variables have a log-difference transformation applied to them, giving them the interpretation of the annual percent change. Each can be viewed independently below:

With these variables, I then apply a one standard deviation shock to the transformed House Price Index (HPI), which works out to be about a 4.6% point annual change in the index. Observing how this shock filters itself through both the HPI and GDP over time we see the impact of this shock. This impact is presented below.

First, evaluating the impact of a 4.6 percentage point shock to the House Price Index (HPI) on itself. What we witness is no big surprise, the housing price index jumps in the shocked year (year 1) and then slowly returns to it's normal. With a 95% Confidence level, this shock to house prices has been fully absorbed within 2 and a half years.

Recall we are dealing with growth rates here. Imagine the HPI is doing its thing, then, out of the blue, it jumps by 4.6 percentage points. the effect is an immediate increase in the index, followed by 2 and a half years of additional (but slowing) growth before returning to its pre-shock level of growth. 

Looking at the impact of a shock to the HPI on GDP we witness an impact which was expected. Our shock happens in year one, however, this does not filter through to impact our level of GDP until the second year. At this point, the GDP jumps to an estimated increase of 2 percentage points (fairly large given average growth rates of GDP). However, this impact quickly subsides and is showing no statistical effect 2 and a half years after the shock.

Through this, we can determine the elasticity of GDP to the HPI (for some % change in HPI, what is the impact on the % change in GDP). Thus we can determine the elasticity of GDP to be 0.435, meaning that GDP is not overly sensitive to a change in the HPI, that is GDP would be inelastic. Just the same we can take this to mean that for a 1% point change in the HPI, we would expect to witness a 0.435% point change in the GDP.

So, if we do see a collapse of house prices, this may filter into a bad few years for the BC Economy. Keep in mind, in 2014 when oil prices collapsed causing Alberta's GDP to collapse, Oil and Gas (with support services) accounted for aproximately 8% of Alberta's GDP. Given BC's reliance on the FIRE industry (25% of GDP), a collapse in the price of real estate could very well have a major impact on our provincial economy.

What are your thoughts on this, feel free to comment below.