This series looks at some of the ways that people organize themselves to live alongside each other in cities. Part 1 looks at inherent problems with top-down planning, and this part will expand on this issue with the specific problems of pricing government-owned land.
Prices are an emergent order that convey information beyond what is available to any individual. Entrepreneurs are incentivized by profits to provide consumers with the goods that they are looking for. The market is constantly moving toward equilibrium as consumer preferences change and entrepreneurial discovery takes place. With all of these moving parts, equilibrium prices will never be achieved, but we will always be moving toward equilibrium as entrepreneurs respond to profit and loss feedback. For me, the clearest description of this market process is Israel Kirzner’s Competition and Entrepreneurship.
The essay “I, Pencil” by Leonard E. Read provides a simple illustration of the dispersed knowledge that prices capture. He points out that there is not a single person on earth with the knowledge to construct a pencil, one of the simplest consumer goods available. Prices allow for this division of labor. While the land market is distinct from manufactured goods, prices play an equally important role in allocating land use. The knowledge of this highest value use is likewise disperse and tacit, so no one decision-maker has the necessary information to allocate land efficiently.
The problem of government pricing is perhaps most severe in below market-rate or zero-price street parking, but it can also be seen in open space, where the value of the land that is dedicated to (often unused) public space is not considered. In The Death and Life of Great American Cities, Jane Jacobs criticizes government-provided land use in the form of city sidewalks that are too narrow, parks that are too large or not visible enough to public view, and blocks that are too long.
Many have disagreed with her on all of the specifics of these criticisms, but there is little doubt that cities make mistakes in land use allocation. Because cities don’t make entrepreneurial profits or losses on the land use allocation that they select, the process of making improvements is slowed and may even go the wrong way. The way to test a better allocation of land is by allowing the price system to function. Prices provide the information for the profit and loss feedback system to tell entrepreneurs whether or not they are doing a good job, and when a city owns land and determines its use, this feedback is not available.
When we see parks that go unused or public spaces that create opportunities for crime rather than add value, the absence of profit and loss is in part to blame. While a city can set prices for government-owned land, it cannot be an economic actor like any other because it acts outside market incentives. When a city sets prices for the land that is owns, this is an improvement over the zero-price alternative, but the market process cannot be introduced to improve land use for property that remains government-owned.
Anonymous says
April 3, 2012 at 10:13 am“When a city sets prices for the land that is owns, this is an
improvement over the zero-price alternative, but the market process
cannot be introduced to improve land use for property that remains
government-owned.”
Except sfpark.org is doing just that.
awp says
April 3, 2012 at 4:47 pm“When a city sets prices for the land that is owns, this is an improvement over the zero-price alternative,”SF is attempting to set a clearing price.
“but the market process cannot be introduced to improve land use for property that remains government-owned.”
SF is not as of yet transitioning underutilized parking to higher order uses.
Anonymous says
April 3, 2012 at 5:40 pmThe goal of SFPark is to prevent both underutilization and underutilization. If it succeeds, there will be no underutilized parking that could be transitioned to higher order uses.
Anonymous says
April 3, 2012 at 8:01 pm“prevent underutilization and shortages”, I think you mean.
I think, if it succeeds, there will be no major shortages, and it will be easy to see the value of a parking spot. At that point, it’s fairly easy to propose “hey, here’s a parking spot that’s only averaging $120 a month, and Mr. Cafe Owner has offered $200 a month to use it as additional seating instead.” And so transitioning underutilized parking to higher order uses is much easier, politically.
San Francisco’s doing something like this, but with fixed fees. See here: http://sfpavementtoparks.sfplanning.org/. The program has no market process in place, and there are certain oddities, like the fact that the resulting space can only be used for a “public” purpose which only indirectly benefits the sponsor. At the same time, the fees are currently lower than meter revenues would be. But it’s not too difficult to imagine how the two programs could be combined to create a market-based transitioning of parking spaces to other uses.
awp says
April 3, 2012 at 10:21 pmtraal,
there is a lower bound on prices for parking. If spots are not being used at 0-25 cents an hour, then it is likely/possible that the spot is underutilized and has a higher order use. Even at higher prices. Land is very valuable in SF.
The question is, with simplifying assumptions.
Given a 100 sqft parking space and the average value of land in the area. Assuming that it could be easily transferred to prevailing alternative use. What would the average hourly take for a parking space have to be for it to be a good deal.
Baklazan,
Seems like this SF system might work out even better than I thought. Although I wish the pricing was a little more automated and dynamic.
“it’s fairly easy to propose “hey, here’s a parking spot that’s only averaging $120 a month, and Mr. Cafe Owner has offered $200 a month to use it as additional seating instead.””
So are they planning to do that?
In your link one (maybe only) of the relevant selection criteria is
-Sizeable area of under-utilized roadway
So hopefully they can use the new meter data to find under-utilized roadway.
How likely do you think it is that the two programs will end up being connected?
awp says
April 3, 2012 at 10:21 pmtraal,
there is a lower bound on prices for parking. If spots are not being used at 0-25 cents an hour, then it is likely/possible that the spot is underutilized and has a higher order use. Even at higher prices. Land is very valuable in SF.
The question is, with simplifying assumptions.
Given a 100 sqft parking space and the average value of land in the area. Assuming that it could be easily transferred to prevailing alternative use. What would the average hourly take for a parking space have to be for it to be a good deal.
Baklazan,
Seems like this SF system might work out even better than I thought. Although I wish the pricing was a little more automated and dynamic.
“it’s fairly easy to propose “hey, here’s a parking spot that’s only averaging $120 a month, and Mr. Cafe Owner has offered $200 a month to use it as additional seating instead.””
So are they planning to do that?
In your link one (maybe only) of the relevant selection criteria is
-Sizeable area of under-utilized roadway
So hopefully they can use the new meter data to find under-utilized roadway.
How likely do you think it is that the two programs will end up being connected?
Anonymous says
April 4, 2012 at 6:36 pmI don’t know– I’m just speculating there. SFPark is still in its nascent stages, and is still quite controversial.
The pricing is fairly automated, ie set by formula based on average occupancy. You can see the statistics and resulting price changes on sfpark.org. The lack of dynamism is by design– the thinking being that people time to adjust their habits, and to avoid rapid oscillations in price.
It’s still a trial project, so I think they’re going to be thinking about ways to adjust it.
Regarding the Pavement-to-Parks program, I believe there is actually state law which limits the use of roads to “public purposes”. Free parking counts, and metered parking is exempted, but I think that the city can’t actually rent it to private businesses. I know there are some attempts by our state reps to loosen restrictions to allow for more experimental management methods. So far, they’ve gotten around it by making all the parklets officially “public”, so restaurants can install them out front, but can’t treat them as official seating, can’t serve there, and can’t ask anyone to leave (but can allow people to get food and take it out to the parklet).
As far as I know there are no plans to open it up to all comers. Market rate
pricing is definitely controversial in SF. The Pavement-to-Parks program
wasn’t really justified on the basis of “higher and better use” but
more on environmental and public amenity grounds, and as such the fees
are not market-based, but fixed (and relatively low). So far, the selection has been made by
application, and there have been accusations of bias.