Irrelevant real estate trends

Earlier this week Wendell Cox wrote a piece at New Geography arguing that projections for increasing demand for multifamily housing relative to single family homes are incorrect. He was criticizing a study by Arthur Nelson that predicts increased demand for multifamily housing relative to single-family housing in California between 2010 and 2035. So far, Cox points out that this hypothesis is not being fulfilled; between 2000 and 2008 slightly over half of newly occupied housing units were single-family homes on conventional lots (larger than 1/8 acre), not indicative of a shift in preferences toward multifamily housing.

Cox emphasizes that his data is based on revealed preferences rather than forecasts or surveys which may indicate a false preference for denser housing. However, he does not acknowledge that these preferences he cites are not revealed in a free market. The mortgage interest tax deduction biases home buyers toward larger homes, the complex entitlement process for dense infill development restricts supply of denser housing, and the the zoning and parking requirements that regulate development all shape revealed consumer decisions.

Both Cox and Nelson seem to base their views of consumer preferences heavily on introspection, assuming that over time more Americans will come to share their preference for suburban or urban living respectively. And they both take the same approach of looking at the real estate trends aggregated across the entire state. This is an interesting question for academics, but not a particularly relevant area for real estate markets. Real estate is local, and state trends are not likely to apply to many cities and neighborhoods. The average home sold in California went for $309,000 at $195 per square foot last month. However this statistic is meaningless for West Hollywood residents where the  average sale price was $378 per square foot. It’s equally meaningless for Bakersfield residents where the per-square-foot price was $87. Only one of these local areas faces a housing affordability problem, which Cox emphasizes is an important concern for land use policy.

Fortunately for consumers, it’s not necessary for academics to accurately forecast changing real estate preferences. They only need for local developers and homebuilders to do so, and the profit incentive leads developers to do just this, unless policy prevents them from doing so. High housing costs indicate supply restrictions that prevent developers from meeting consumer demands. If Bakersfield city planners adopted a binding urban growth boundary, the type of policy Cox decries, we would see the cost of conventional single family homes rise. In most of the places where we see housing affordability problems such as West Hollywood, it’s not Smart Growth policies that are to blame, but rather conventional zoning that prevents increased density from bringing down housing costs.

The most notable exception to this is Portland’s Urban Growth boundary which, in conjunction with density restrictions, keeps house prices in the city at $200 per square foot compared to the state average of $135. This UGB seems to be the driving force behind the work of many anti-density “market suburbanists,” which alone is enough of a reason to oppose this policy. However, in the cities where residents pay the greatest premium for housing, it’s likely that we would see much more multifamily home construction in a freer market.

If zoning restrictions and parking requirements were relaxed in areas of the country where residents currently pay the highest premiums to live, we would in large part see more multifamily construction rather than single family. This is why, despite the cumbersome entitlement process for multifamily buildings in many cities, and the mortgage interest deduction luring consumers to larger owner-occupied homes, over half of last year’s building permits were for multifamily units in some of the country’s most expensive cities like Los Angeles, New York, and Washington, DC.

The High Cost of Free Parking Preface and Afterword

This is the last post in the series on Donald Shoup’s The High Cost of Free Parking. Previous can be found here:

Chapters 1 – 4

Chapters 5 – 9

Chapters 10 – 14

Chapters 16 – 18

Chapters 19 – 22

Preface

In these two chapters, which Donald Shoup added for the paperback edition of the book, he discusses some of the changes in parking policy since the original edition in 2004. He also reiterates his three prescriptions for saner parking policy:

1) Set the right price for curb parking;

2) Return parking revenue to pay for local public services;

3) Remove parking minimum requirements.

He points out that cities that have tried “performance parking” have had successful results. San Francisco’s SFpark is perhaps the country’s most advanced system for performance parking. Curb sspaces include sensors that can tell whether or not the space is occupied. Then parking amnagers can adjust prices remotely to approach the 85% occupancy goal as closely as possible.

Shoup argues that performance parking should not be a politicized change. Setting an 85% occupancy target is not designed to raise revenue or to benefit any group at the expense of another. Rather, prices can eliminate parking shortages, so that people pay for parking with money rather than with time spent cruising. These prices also incentivise greater turnover. Nonetheless, he points out that performance parking has opponents:

Thinking about parking seems to take place in the reptilian cortex, the most primitive part of the brain responsible for making snap decisions about urgent fight-or-flight choices such as how to avoid being eaten.

The same could be said about many land use decisions which do not seem to be made on the basis of rationality. He points out that performance pricing is very unlikely to reduce customers in any district, as the prices are set to maintain high occupancy rates. Those customers unwilling to pay for parking are unlikely to be businesses best customers at any rate. Despite this opposition, cities that have tried parking performance prices seem to be keeping them in place. Shoup speculates that people tend to oppose performance pricing more strongly before they see its benefits upon implementation.

As far parking revenues going back to the neighborhoods where they are raised, Shoup cites the continued economic growth of Old Pasadena as a success for this policy. Redwood City, outside of San Francisco, has adopted a similar model, where parking revenues stay within the Downtown Core Meter Zone.

Toward his final recommendation, Shoup has found at least 129 cities that have removed some of their downtown parking minimums. Additionally, cities including Los Angeles have introduced some flexibility into their remaining parking requirements allowing, for example, apartment buildings to meet some of their parking requirements off site. This has made some historic office buildings viable renovation projects that otherwise would have been vacant or demolished. While Shoup posits that a slow revolution is underway in planning for parking, but he laments that these changes have not yet reached the suburbs, where parking requirements largely remain intact.

Afterword

Shoup details some of the cities that have raised parking prices to reduce shortages. Washington, DC, New York City, Ventura, and Seattle have all implemented higher parking prices, though not all of them have set specific occupancy targets. He also explains Chicago’s failure in privatizing its parking meters while capping meter rates. The city missed an opportunity to let bidders set higher meter prices to both reduce cruising for parking and to make more money in selling off meter rights.

He discusses the importance of enforcement in making these policies work. Shoup suggests that cities should set graduated parking tickets, perhaps giving warnings on drivers’ first offenses. Tickets obviously irritate drivers and may foster ill-will against higher meter rates. However, drivers cannot be allowed to serially skip paying, or the prices will not be effective.

Shoup also discusses the problem of disability placard abuse. Many cities have set up incentives for this abuse by allowing cars with placards to park free. While this may sound like a good idea, Shoup points out that the current situation may lead to so much abuse that people with disabilities will have difficulty finding spaces close to their destinations. With higher meter prices, the incentive to abuse placards will be even greater. He advocates Arlington County’s policy  of requiring all drivers to pay for parking but reserving some conveniently located spots for those with disabilities, reducing the incentive for abuse.

In this chapter, Shoup cites some recent studies of parking requirements, which find that parking requirements do in fact lead developers to build significantly more parking than they would in a free market. He also explains that some cities, including New York and San Francisco have taken parking pricing to the next step, permitting restaurants to use parking spaces for seasonal outdoor cafes.

Final Thoughts

To reiterate, I highly recommend the entire book. I am in complete agreement with Shoup on his first and third recommendations for parking policy, and he clearly and persuasively makes the case for these two arguments. However, the more I think about it, the more I think that his recommendation of parking revenue benefit districts might not be the best solution, even though it would be much better than the status quo. Yes, this policy has successfully built support for performance pricing in some neighborhoods. However, I think that tax abatement districts would build even more support.

People might like to see more business improvement districts, but I think that they would prefer cash. There would be various ways to provide the tax rebates, and cities could decide whether to provide them to the neighborhoods where revenues are raised or to provide them equally to everyone in the city. For existing business or residential improvement districts, or for neighborhoods that want to start them, residents could agree to dedicate their rebates to the district for if they want to. This would keep improvement districts voluntary and maintain existing incentives for privately funded districts to spend their revenues well.

Property taxes are particularly unpopular, and I think abatement would be sufficient to build support for parking prices that eliminate cruising. As Shoup says, charging higher meter rates is not about increasing cities’ revenue, but rather about eliminating curb parking shortages. By giving the increases in revenue back to the residents who are paying these higher rates, additional cities can build the political support necessary to charge appropriate prices for parking.

The High Cost of Free Parking Chapters 19-22

This post from the series on The High Cost of Free Parking is reposted from last week because the site’s database caused recent posts to be deleted.

Chapter 19: The Ideal Source of Local Public Revenue

In this chapter, Donald Shoup makes the case that passing up the potential revenue source of curb parking doesn’t make fiscal sense for cities. He bases his case heavily on Henry George’s theory of land taxation. George argued that land is the fairest and least distortive good to tax because its value comes not from individuals, but from the community. Milton Friedman agreed saying, “the least bad tax is the property tax on the unimproved value of land.” One obstacle to relying on a land tax as a sole revenue is that accurately appraising unimproved land is difficult. But Shoup points out that charging for parking avoids this problem because cities can use prices as demand management.
Shoup further explains the political potential for parking benefit districts and includes a section discussing the potential to create similar benefit districts for freeway tolls. He points out that dedicating toll revenues to the neighborhoods that they pass through would create an interest group for congestion pricing and that this would benefit the often low-income neighborhoods where freeways are located.
I think a key part of this chapter is that Shoup explains how charging for parking to prevent shortages illuminates the opportunity cost of dedicating land to curb parking. As this price becomes visible, it may open up opportunities to lease current parking spaces for other uses, such as outdoor dining or outdoor retail. While he is optimistic about the potential for parking reform, he includes this great line: “Staunch conservatives often become ardent communists when it comes to parking, and rational people quickly turn emotional.”

Chapter 20: Unbundled Parking

This chapter is based on the likelihood that if cities stopped setting parking minimums, developers would no longer build so much parking that the marginal cost of additional spaces exceeds the marginal benefits. In this case, parking costs could be unbundled from other goods, like apartments, offices, and retail goods. This will allow resources to be dedicated to higher valued uses and will create better decision-making among consumers by causing the cost of car ownership including parking to reflect the true cost.
Unbundling also requires that street parking is priced to eliminate shortages, or else those who do not want to pay for unbundled off-street parking will spill out to curb parking leading to cruising and wait times to find parking spaces. He points out that unbundling could lead to benefits to consumers who choose to reduce their car ownership or not own a car at all through cheaper rent or a parking cash-out from their employer:
Unbundling will thus convert parking from hidden, fixed cost of living into an explicit, marginal cost of owning used cars.
In a world without parking minimums and with appropriately priced street parking, we can expect parking to be unbundled from other goods when the transaction costs of doing so are lower than the value of the space, leading to improved use of land over time.

Chapter 21: Time for a Paradigm Shift

This chapter brings home the points made in the first section of the book; planners have fallen into the trap of requiring as much parking as people want to use at a zero price. This practice encourages driving and thus leads to even higher parking requirements. As Shoup says, it’s time for a new paradigm that requires drivers to internalize the costs of their own parking. In this new paradigm, those who don’t drive or who already economize on driving and parking will not be forced to subsidize those who do not. He points out that a new paradigm requires messaging and an interest group to support it and says that parking benefit districts can take care of this challenge.

Chapter 22: Changing the Future

In the final chapter, Shoup points out that our current parking problem stems from free or underpriced curb parking and the resulting commons problem. The economical and efficient way to solve this commons problem is with prices, not with requiring enough off-street parking to bring the price of all of a city’s parking to zero. He concludes:
These three reforms — charge fair market prices for curb parking, return the resulting revenue to the neighborhood to pay for public improvements, and remove the requirements for off-street parking — will align our individual incentives with our common interests, so that private choices will produce common benefits.

Thoughts so Far:

The next and final post on this book will cover two chapters that are not included in the first edition. I’ve been reading the older version, but Shoup has added two new chapters discussing how parking policies have changed in the years since that he was kind enough to share.
I have one potential alternative to his policy prescriptions introduced in earlier sections and expanded here. While Shoup focuses on the potential for parking benefit districts to create a constituency that supports appropriate prices for curb prices, I would suggest that a property tax abatement district could create even more support for parking prices. While voters may like a parking benefit district and visitors to the neighborhood would get to enjoy its work as well, I think more people would more enthusiastically support a lower property tax burden. Additionally, one asset of Business Improvement Districts is that they are voluntary and rely on the support of participating businesses for their existence. Parking benefit districts would have a guaranteed source of income and thus would not face the same good incentives.
I would highly recommend the full book to any readers who haven’t already read it. The book includes much more empirical support than I’ve covered, and while it is long, it is not a difficult read. Shoup is frank in acknowledging that people like free parking and that instituting prices will be unpopular, but he provides examples of tested reforms that have overcome the initial political hurdles to charging appropriate prices for parking.

The High Cost of Free Parking Chapters 16 – 18

This post follows on the earlier discussion of the The High Cost of Free Parking.

Chapter 16 — Turning Small Change in Big Changes

Here Donald Shoup gets to the idea of using Business Improvement Districts to manage street parking as Brandon Smith mentioned in the last post’s comments. When parking revenue goes to municipalities’ general funds, drivers see it as a fee with questionable benefit. Contrarily, when parking revenue stays in the neighborhood, it can provide tangible benefits in the form of neighborhood improvements. This may make drivers more willing to pay for parking. More importantly, it creates an interest group in favor of charging a rate for parking that provides an funding source for neighborhood improvements. Seen from this angle, paid street parking benefits businesses from multiple angles.

He uses to Los Angeles neighborhoods to demonstrate the potential benefits of parking revenues. In the 1980′s, Old Pasadena was suffering from a vacant building problem because historic buildings did not include onsite parking. As a result, they could not be repurposed. In 1993 the city introduced parkign emters and gave the revenues to the neighborhood to finance public improvements. Additionally, building owners were given the right to pay a fee for parking in a public garage rather than providing parking onsite, allowing existing buildings to be repurposed. These policy changes have created an environment where drivers can easily find parking and a streetscape that is more inviting for pedestrians.

Shoup contrasts Pasadena with Westwood Village which has been in decline since the 1980s. In 1994 a parking study revealed that curb parking was 96 percent occupied, meaning the neighborhood had a significant cruising problem. As a response to the neighborhood’s decline, though, the city decreased hourly parking rates from $1 to 50 cents, worsening the parking shortage. This revenue goes to the city’s general fund even though the neighborhood is in need of streetscape improvements. Shoup explains that Old Pasadena has become as desirable as Westwood Village once was.

Many business districts may believe that free parking is an asset, and in a sense it may be. But turning parking revenue over to the neighborhood will make the change politically palatable and will reallocate parking spaces to those drivers who are willing to pay for it. Additionally, higher prices will increase parking turnover, allowing more customers to visit local businesses.

Chapter 17 — Taxing Foreigners Living Abroad

The title of this chapter plays on the perennial desire of residents of one jurisdiction to receive public services at the expense of those outside the jurisdiction. Shoup suggests this may be possible when it comes to neighborhood parking. At present, property owners and tenants in residential areas often oppose commercial development because of parking spillovers. With good reason, these NIMBYs have concerns that commercial developments will lead to increased parking pressure for the free spots on their streets, making it difficult for them to park near their homes. Shoup suggests this creates an opportunity for residential parking benefit districts. Those with residential permits could park free in these neighborhoods, but drivers visiting the adjacent commercial uses would pay for parking. This parking management could ensure that parking does not become overly congested and also provide the neighborhood with money to finance improvements.

This policy contrasts with some neighborhoods that have created zones where only those with residential permits can park. This policy often leads to excess street parking availability and eliminates potential gains from trade.

In some residential neighborhoods, however, the parking commons problem comes from the residents themselves who pay below market rate for their residential permit prices. In these cases Shoup suggests that all street parking should be allocated with prices high enough to provide some availability. He points out that this could also reduce NIMBYism toward converting carriage houses or garage space to accessory dwellings, permitting new affordable housing. Because parking would be governed by prices, new residents will not lead to a parking shortage.

Shoup writes:

The twentieth century saw a great competition between two economic systems: central planning and market prices. . . . Parking is a perfect example of an economic activity where planners have usurped markets without justification. We have relied almost exclusively on the command-and-control approach to regulate parking, and we have failed spectacularly.

Chapter 18 — Let Prices Do the Planning

In this chapter, Shoup emphasizes that prices are the only way to allocate goods given consumers’ varying preferences. He models parking decision based on the variables of distance to destination, price of the parking spot, parking duration, walking speed, number of people in the car, and value of time. In a world of free parking, drivers varying preferences for time and willingness to pay cannot be served; rather everyone must pay for parking with their time. When parking is priced according to demand on each block, the invisible hand will efficiently lead drivers to park in the spot that meets their preferences for saving money and saving time for each trip.

Additionally, charging appropriate prices for curb parking reduces political pressure for off-street parking. In this scenario, develoeprs will have the incentives to provide the amount of off-street parking their customers demand, and planners can begin rolling back parking requirements. Retailers that choose not to include parking in the price of their goods will be able to compete with lower prices or on other aspects of their service.

Thoughts on this Section:

These chapters provide some solutions to current parking problems that seem both effective and politically possible with BIDs and residential parking benefit districts receiving parking revenues in their neighborhoods. It’s heartening to see some market urbanist solutions that have succeeded in neighborhoods and cities already. However, I’m not convinced that the proposal to charge for all street parking in some neighborhoods would be accepted by many residents, and Shoup acknowledges it could be difficult. At present neighborhoods often oppose new development because of its parking pressures, but it’s not clear to me that residents would prefer paying for street parking than dealing with parking congestion.

Also, I think it’s important to acknowledge that some people benefit from the current situation, predominantly those who place a low value on their time, make frequent car trips, and prefer cruising to paying for parking. This is not to say that charging for street parking and eliminating off-street parking requirements wouldn’t be a step toward fairness and efficiency, but rather that it’s honest to acknowledge this change will make some people worse off.

I enjoyed this section as it focuses on the power of prices to create order and the role of institutions in the parking problem. He ends chapter 18 with an idea picked up in Eran Ben-Joseph’s Rethinking a Lota book I recently reviewed at City Journal. Shoup and Ben Joseph suggest that cities should move from regulating to the number of parking space to regulating parking design. However, as I see it regulating for design will be subject to the same knowledge problems Shoup points out in regulating for quantity.

The High Cost of Free Parking Chapters 10-14

This post follows on the earlier discussion of the The High Cost of Free Parking.

I realized that I left a couple of important points out of the last post. First, Shoup applies the Hippocratic Oath of “first, do no harm,” to parking requirements. What a great way to think about city planning. If this standard was applied to all policies, we’d be living in libertarian utopia already. Secondly, he gives great treatment to the issue of why politicians sometimes choose regulations over taxation. Regulation imposes costs on everyone, but because these costs are hard to see, their costs are not easily traced to government. It is a less transparent way of manipulating behavior.

Chapter 10 – Reduce Demand Rather Than Increase Supply


This chapter explores some of the policy alternatives available to cities that could reduce the number of parking spaces needed to satisfy demand. Shoup supports programs that allow employers to provide their employees with unlimited transit passes. In cities where transit operates below capacity, transit agencies may be willing to sell this type of pass to employers at a low cost, knowing that many pass employees won’t use their passes regularly. As of 2002, Dallas, Denver, Salt Lake, and San Jose had adopted this type of program.

In two studies, providing these eco passes reduced employees’ demand for parking by 19%, offering employers an opportunity for significant cost savings if they can provide 19% fewer parking spaces as a result. Shoup points out that in some cases this policy can be a win for everyone involved because employees receive an additional benefit, employers can save money, traffic is reduced for the cities’ other commuters, and transit agencies earn some additional revenue at near zero marginal cost, assuming they are operating below capacity. Unfortunately, Shoup finds that in some California cities that have eco pass programs, municipalities did not reduce the parking requirements for employers that provide eco passes, eliminating the incentive to participate in the program.

In addition to their potential as workplace benefits, eco passes could make even more sense for other land uses such as stadiums or theaters, which could include the passes in ticket prices to reduce the amount of required parking. These might be destinations that customers would be likely to take public transportation to, and required parking that is used only for infrequent events is a particularly bad use of land.

Aside from eco passes, Shoup suggests two other policies that could lower parking requirements. He suggests employees could cash out their parking spaces, taking the value of their parking spot in cash while giving up their parking permit. The other option is car sharing, which he suggests could work well for apartment buildings which could provide some shared cars in lieu of all of the required parking spaces. All of these policies have the advantage of increasing flexibility and reduce the subsidy to driving.

Chapter 11 – Cruising

This is the beginning of Section II which switches to a focus of street parking instead of off-street parking. Because no one has property rights over street parking, we all face an incentive to overuse it. Street parking is often underpriced in monetary terms, so drivers pay for parking with the time they have to spend looking for a space. Several studies of cruising in various cities demonstrate that drivers who park on the street spend between 3.5 and 13.9 minutes looking for parking on average. While they are doing so, they contribute to the traffic problem for all other drivers, in particular because cruisers are likely to drive slowly and may block traffic while they wait for a car to pull out. This chapter includes some great anecdotes of parking in pop culture as well as stories of the lengths people go to to avoid paying for parking.

Chapter 12 – The Right Price for Curb Parking

Shoup explains that free or underpriced curb parking leads to the NIMBY demands for off-street parking:

If curb parking is free, and developers do not supply enough off-street spaces to satisfy the demand for free parking, neighbors will complain about parking spillover (real, anticipated, or only imagined). These complaints lead urban planners and elected officials to increase the off-street parking requirements until the spillover problems are resolved.

If cities charged higher prices for street parking this would cease to be a concern, but in many cases they have sought to satisfy demand for free parking instead. Shoup proposes that cities could alleviate this spillover problem and eliminate cruising by charging higher prices for parking. He suggests that the market price is when street parking is 85% occupied, meaning that each block typically has one open space. Prices would vary by block and by time of day to achieve this occupancy rate. Unlike a private parking lot, cities will not charge the profit-maximizing price but rather what he calls the “socially optimal price” that achieves these parking availability goals. He cites the success of raising the price of parking in London to eliminate cruising even in very high-rent neighborhoods where we might think residents wouldn’t be sensitive to higher prices.

Chapter 13 – Choosing to Cruise

This chapter explains the seemingly irrational behavior of drivers who choose to drive around looking for parking rather than save time to park off-street. He points out a couple of complicating variables, including that drivers place different values on their time, so some may be bothered by cruising more than others, and unlike other types of lines, drivers “waiting in line” to park don’t know how long they will have to cruise to find a spot. The factors that go into this decision for an individual are:

  • the price of curb parking
  • price of off-street parking
  • parking duration
  • time spent searching for curb parking
  • fuel cost of cruising
  • number of people in the car
  • value of time spent cruising

In a study of parking in Los Angeles at several different locations, Shoup finds that on average, drivers who are parking for one hour can save $4.89. Looking at parking near the city halls of several different cities, drivers could save on average $4.71 per hour. In both cases drivers face significant monetary incentives to cruise so long as cities price curb parking low enough that there are shortages.

Chapter 14 – California Cruising:

Shoup studies parking in L.A.’s Westwood Village more in-depth to get a more precise idea of the realities of cruising. Street parking there is free after 6 p.m. (or was as of the study at least), leading drivers to cruise for an average of 9.7 minutes in the evenings. Westwood Village includes 15 blocks, and Shoup discovered that on a typical day, drivers travel a total of 3,633 miles (!) while looking for parking in this small neighborhood, contributing to traffic and wasting fuel as a result.

He also points out that while it may appear that underpriced parking benefits a neighborhood’s retailers, this may not be the case. The benefits of underpriced parking go mainly to people who have a low time value, are solo drivers, and who want to stay parked for a longer time. All of these factors indicate that eliminating parking shortages could improve the situation for a neighborhood’s retailers.

Thoughts on this Section:

I think it’s important to focus on the different problems that parking policies create in varied environments. Section 1 of the book focuses primarily on places where developers are required to provide enough parking to satisfy demand at zero-price. This often results in sprawling surface lots, creates incentives to drive more, and makes walking and transit less appealing. On the other hand, cruising is a problem only in places where off-street parking is not free. Parking shortages are a disincentive to driving. While both issues go back to underpriced parking, it seems worth noting explicitly that they are rarely simultaneous problems.

My only real criticism of this section is the use of the term “market price” to describe the prices that cities should charge to achieve target curb parking availability. As Sandy Ikeda has pointed out previously, cities cannot set market prices, and we can never have a market in government-owned land that is unavailable for any uses other than parking. Pricing parking for occupancy is a second-best alternative.

The High Cost of Free Parking Chapters 5-9

This post follows on the earlier discussion of the first four chapters of The High Cost of Free Parking. Sorry for the delay on this next section. Work has been getting in the way of reading this parking tome. I will plan to post on chapters 10 – 14 next week on Wednesday.

Chapter 5- A Great Planning Disaster

Shoup sets up parking requirements as a great planning disaster. If an individual developer chose to dedicate more of his land to parking than his customers demanded, he would lose money on the margin. If he is a major property owner and somehow made this mistake repeatedly at many properties, we might consider it a disaster. But a planning disaster occurs when no individual loses a lot of money in this type of error, but rather we all lose some. Shoup explains that parking requirements breed demand for more parking. By subsidizing driving, these rules lead more people to become drivers and encourages sprawling development. This in turn creates an increased demand for free parking and leads to higher parking requirements, since many cities base these requirements on the peak number of people who would like to park at a building for free, leading to the parking disaster we have today.

Shoup explains that oftentimes parking requirements are so onerous that they dictate development both in use and in architecture. For example, Los Angeles’ “dingbat” apartments which are apartments built on stilts over driveways were created to fulfill requirements for covered parking. This chapter includes the empirical evidence that I find most persuasive so far, a study of changes in development after Oakland implemented a parking requirement in 1961. For new developments in the two years after the regulation went into effect, residential construction costs increased 18% per unit, housing density decreased by 30%, housing investment decreased by 18%, and land values fell by 33% compared to the four years before the requirement. This is strong evidence that in Oakland, at least, parking requirements, rather than demand for parking, drive parking supply.

Parking requirements also make existing development less flexible. As he explains, the specificity of requirements for each land use mean that buildings can rarely be used for something with higher requirements than current uses. Shoup points out that this obstacle toward reusing existing buildings creates incentives to pursue greenfield development where it’s cheap to build required parking, leaving properties vacant in center cities.

Shoup points out that the costs of parking requirements do not fall evenly on everyone. They act like a regressive tax because low-income people who are less likely to be car-owners and make fewer car trips receive fewer benefits but all of the costs. Additionally, they encourage people to become drivers who, in a world without parking requirements, might prefer to use other transportation modes. Parking redistributes wealth from those with preferences for making frequent, short car trips to those who drive less or don’t drive at all.

Chapter 6 – The Cost of Required Parking Spaces

The title of this chapter is somewhat misleading because it focuses on the cost of parking generally without distinguishing whether or not these spaces would have been built absent parking requirements. Shoup details the cost of constructing parking structures, using data for garages on UCLA campuses, finding that the average cost of each space built from 1961-2002 is $22,500 in 2002 dollars. Unsurprisingly, underground parking is significantly more expensive that above-ground parking. Since parking is usually built underground when land is more valuable, we can see that parking requirements are more expensive in more expensive areas. Using the assumptions of a 4% interest rate and a 40 year amortization period, Shoup calculates that the average parking spot at UCLA costs $127 per month.

Because free parking induces people to drive more than they otherwise would, Shoup also discusses some of the externalities of parking. As more roads induce more driving, so do more parking spaces. He estimates that each parking spot at UCLA has monthly external costs of $73 in traffic congestion and $44 in pollution, for a total of $117 per month. He points out that while in 2002 the average debt-financed parking spot costs UCLA $201 per month and has $117 in externalities, students paid $54 for parking passes.

Chapter 7 – Putting the Cost of Free Parking in Perspective

Because we pay for free parking in the costs of all other goods, we often don’t have a good idea of what it really costs. Shoup cites a study from Mark Delucchi who estimates that the total cost of off-street parking in the United States from 1990-1991 was between $79 billion and $226 billion per year. Drivers during that time paid about $3 billion of that cost  in lots that charge for parking. He also compares parking costs to the cost of roads and vehicles, finding that using conservative estimates of the cost of parking spaces, our stock of parking is worth more than both our stock of vehicles and our stock of roads. He argues that charging for parking would be a more effective way to reduce traffic congestion than congestion tolls.

Chapter 8 – An Allegory: Minimum Telephone Requirements

Shoup proposes a thought experiment about what would happen if we treated phone service the way that we treat parking, requiring those who receive calls to pay for all of the calls they receive free to callers. This policy would increase the demand for telephone service, leading to minimum telephone requirements and even more calling. It’s funny how this chapter feels very dated even though the book was published only seven years ago.

Chapter 9 – Public Parking in Lieu of Private Parking

Shoup suggests that cities can improve their parking policies by allowing developers to pay for spaces in public parking garages rather than requiring parking on site. This policy introduces design flexibility, reduces waste in parking spots for proximate businesses that experience peak parking demand at different times, allows existing buildings to be reused more easily, and allows people to park in one place and leave their car there while they visit multiple businesses.

Cities that offer the option of in-lieu fees for parking offer interesting insight into the costs of parking for developers because when  developers choose to pay the fee rather than build parking, they forgo the value that parking adds to their property. Thus when developers choose to pay in-lieu fees, they are less than [cost of building parking space - capital value of the space].

This chapter includes interesting data on the parking requirements and in-lieu fees charged across cities. Shoup demonstrates that there is essentially no relationship between these two variables. This suggests that city planners do not take into account the opportunity cost of parking when they set requirements, ignoring that demand slopes down.

Thoughts so far:

This section provides some convincing empirical evidence, but I think at times Shoup stretches this evidence to undermine his own case. The Oakland case gets exactly to what I see as the relevant question: How do parking requirements influence development? In a free market, it’s quite possible that some business and residential developments would provide free parking for their patrons, and we need to know how parking requirements increase the supply of free parking.

Shoup relies heavily on data on the cost of parking at UCLA because of its availability. However, I think it would strengthen his case to acknowledge that the UC system might not embody efficiency in development. He points out that students pay less for parking passes than a conservative estimate of the cost of the spaces. However, UCLA students don’t pay market price for many university services.  It’s not clear that parking should be singled out as the one part of the university that taxpayers shouldn’t subsidize.

In chapters 6 and 7, Shoup doesn’t make an attempt to distinguish between the free parking that would be provided absent parking requirements and the total free parking that we have today. He verges on suggesting that it’s wrong for retailers, universities, or housing developers to provide free or below-market-price parking because parking is expensive and suggests parking maximums should be in place rather than parking minimums. I think his case is stronger when he sticks to the problems with parking requirements rather than free parking in general, and I hope the rest of the book includes further studies like the evidence from Oakland.


Market Urbanism Book Club

I’m very excited that some of you expressed interest in doing a book club this summer. I think we should start with The High Cost of Free Parking. It’s the longer of the two books, but it looks like the relative beach read.

I am thinking that what makes the most sense is for me to post some brief thoughts on sections of the book here on the blog that we can discuss in the comments. Other options for the book club would be doing a Google Group which is basically an email chain, or we could do a Google Hangout or Skype discussion live. Please let me know if you have strong preferences for one of these methods. Otherwise, I’ll plan to do a first post on the first four chapters of the book late next week.

More on Parking Prices

At Wabi-sabi, Sandy Ikeda (former Market Urbanism writer) has a great analysis of San Francisco’s pricing for parking. He points out that assigning prices to spots is not equivalent to allowing a market to determine a price. For a real price to emerge capital (the parking space) cannot be state-owned.

Sandy points out that the “shortage” of parking arises because no one owns street parking, so the appropriate incentives are not in place for someone to charge an equilibrium price for parking. While the San Francisco programmay be a step in the right direction, he explains that “more intervention usually doesn’t solve the problems that were themselves the result of a prior intervention.” In this case, the city is trying to set a price for something that it could instead auction off to eliminate the original intervention.

On yesterday’s post, two commenters pointed out other parking reforms in Austin and in Long Beach that go a step further than charging higher prices for parking. These cities have allowed businesses to lease parking spots for outdoor restaurant seating or retail. San Francisco has also tried turning parking spots into mini parks. This has several benefits, including allowing for land to be better-utilized by permitting a form of street narrowing. However, as long as curbside parking remains city-owned, prices for either parking or land leases will be determined arbitrarily, preventing the actual highest-value use from being discovered.