The economics of free parking

Here is my latest NYT column, for the ideas I am indebted to pointers from Daniel Klein, Matt Yglesias, and of course Donald Shoup.

Here is the bottom line:

If developers were allowed to face directly the high land costs of providing so much parking, the number of spaces would be a result of a careful economic calculation rather than a matter of satisfying a legal requirement. Parking would be scarcer, and more likely to have a price – or a higher one than it does now – and people would be more careful about when and where they drove.

The subsidies are largely invisible to drivers who park their cars – and thus free or cheap parking spaces feel like natural outcomes of the market, or perhaps even an entitlement. Yet the law is allocating this land rather than letting market prices adjudicate whether we need more parking, and whether that parking should be free. We end up overusing land for cars – and overusing cars too. You don’t have to hate sprawl, or automobiles, to want to stop subsidizing that way of life.

Here are a few quotations from the article:

“Minimum parking requirements act like a fertility drug for cars.”

And:

As Professor Shoup puts it: “Who pays for free parking? Everyone but the motorist.”

And:

If we don’t give away cars, why give away parking spaces?

What are the biggest problems with the idea?  First, the danger of spillover parking means that a lot of parking has to be properly priced all at once.  If the local K-Mart has a smaller lot, you don't want the customers flooding a neighborhood street and simply shifting the problem.  The proper correction requires a coordinated pricing and enforcement effort, not only to succeed, but also to be sufficiently popular with homeowners.  Fortunately, most of the coordination can be done at the level of the individual town or city.

Second, we don't yet know how many more spaces would be priced in the absence of legal minimum parking requirements, and how many fewer car trips there would be, especially if we are holding the quantity and quality of mass transit constant.  The employer still may wish to subsidize appearance at the workplace.  Alternatively, "parking fees as lump sum tax" is fine by me and it bears an odd but pleasant connection to Georgist ideas.  Another possibility is that a lot of parking is shifted to satellite lots, combined with small buses or shuttles; Tysons Corner Mall already does this at Christmas or consider any number of airports.  That still would improve land use (and welfare), but it remains an open question how much congestion and emissions would get better.

Mark Thoma discusses some distributional issues.  I would note that less land for parking should lower other real estate and retail prices, even if more poor people end up taking the bus.  And the very poorest Americans often don't have cars at all.

Comments

Regarding Mark Thoma's comments, I agree with your further comment. Moreover, in low-income situations such as the one Mr. Thoma is concerned with, perhaps the solution is to let the market set prices, but have government subsidize the low-income person for that particular situation.

P.S. I'm not low-income, and I take the bus. Driving and parking downtown drives me bananas.

People also don't have infinite bandwidth for political calculations. Government types mandate parking, then whine that we don't take buses. It's not about charging for parking. It is about outsourcing the parking to others who figure out what to do about the issue. It is the government that interferes with division of labor and the specialization required to make the economic calculations such as those for parking garages and park and ride.

Wal-Mart doesn't typically locate in urban centers. So, parking lots for Wal-Mart cost the price of asphalt. Bad example.

On interchange fees, I don't want to blow your mind, but I suppose you missed the recent post about the study that showed that credit cards help save consumers money by capturing some of the retailer pricing power. This "retailer as underdog" thing seems to be a relatively new idea. I bet they were the bad guys before the new black hat came to town. Quite often, libertarians simply request patience for all the facts to come in.

cities can do more with adjustable parking rates at meters to pay for some of the other subsidy and put parking rates into a market.

Unfortunately, businesses lobby governments to keep rates low.

In fact, Mike, you've touched on my pet theory of government. It is precisely this desire of the electorate to outsource their thinking in the hope that they can just vote their ideals and that will make them happen. But, there are limits to the division of labor. Sometimes it works, probably for properly defined public goods, because public goods are defined as those things that markets don't do so well. So, I suspect government failure ensues when people mis-diagnose public goods.

Written like a person who lives in an unrepresentatively dense area of the country. Yes, minimum parking requirements are dumb and should be eliminated. But in most of the country land is relatively cheap and plentiful -- at least on the outskirts where most new retail development happens. In those environments, I don't believe development patterns would change much absent such requirements. Yes, many mall and 'big box' store parking lots sit mostly empty most of the time. But they're full during peak holiday shopping season, and not having customers go somewhere else at that critical time for lack of parking is an important consideration.

A quick comment.

As noted above, no one is getting free parking, not even the motorists: it is just incorporated into the prices of the goods. How much of a surcharge do we pay on the goods we buy to get the free parking? Unless it is significant, I'd much rather have free, easy parking...for whatever reason, I also dislike paying for parking so am happy the cost is hidden from me. In addition, paying for parking as a surcharge on goods provides a subsidy for lower income people (who buy less goods but still park a car).

In short: paying for and looking for parking cause much more human misery than paying the 1% surcharge or whatever it is that in reality pays for the parking. Perhaps a cultural change could make people dislike paying for parking less, but I don't think anything is going to ever make looking for parking anything but a miserable experience.

Do you directly force developers to bear the cost of all infrastructure? Schools, sewers, protection, trash? Why not?

Why don't we charge the full, real, cost for public transportation? Why do we allow public union employees to capture monopoly surpluses from government subsidies?

Developers have the ability, often an advantage, when dealing with politicians who control zoning issues, why are they rather passive on the issue?

Parking is a major issue around Wrigley Field, how does the market respond? Parking permits restrict on street parking so many homeowners charge $40 to let people park in their garage. Or business convert customer parking into full game day parking lots. Is it surprising that the local community has not encouraged large parking garages? What would be the result if you stopped residential parking permits? How about congestion on feeder streets?

Suburban malls offer free parking because it makes shopping easy, people buy more on any single trip, and profits increase. Increased customer traffic allows for greater product selection, how do you calculate that benefit?

People who shop at grocery stores with parking shop less frequently but buy more per trip. How do you calculate the time savings of customers? If a car makes it easy to shop at many locations how do you calculate the lower search costs and the lower prices from increased competition?

How do land prices adjust to reflect proximity to work and maximization of non-work hours? Why are so many willing to take mass transit to work but want the advantages of a car at other times. Is public transportation a viable alternative outside of urban cores.

Sound like the old busing debate, the government could do a better job of allocating resources. To improve schools you just had to bus kids to better schools? How did that social engineering workout? How many cities lost middle class families forever?

Are poor communities where many residents lack access to a car better off when they are restricted to shopping at local merchants? What about selection and prices?

Why reject the notion that the market has evolved the way it has because on many levels it meet the needs of the market.

I haven't read Shoup's book, which might be necessary for a fully informed comment, but the column seems to reach a bit in coming to its many little conclusions.

Re: "If we don’t give away cars, why give away parking spaces?"

McDonald's doesn't give away burgers, but they give away seats and tables. Are these "free seats" a contributor to obesity?

Re: "we don't yet know how many more spaces would be priced" and "danger of spillover parking"

If you want to build up an analytical answer to "how many more spaces would be priced" in a world without legal parking requirements, why not look at places without legal parking requirements? Not everywhere looks like Northern Virginia, downtown NYC, or LA. More analytical answers could be generated by looking at areas with varied legal requirements - surely space requirements are not uniform across the country.

In addition, like the Wal-mart on the side of town mentioned above in the comments, some parking places are maintained without legal requirements and in locations without serious spillover problems. Why do those Wal-marts not charge for parking? Seems like private economic calculation will lead well managed companies to offer free parking to consumers in many places, including many places where the parking consumers find the full cost of parking bundled into the retail prices they pay.

If you don't provide adequate parking, demand for the real estate declines, often dramatically. The cost of parking becomes a discount to the value of the real estate. No kidding.

It's nice as an economic argument, but ignores real-world experience. I live 20 minute south of San Francisco, and there are plenty of things in San Francisco and Berkeley that I enjoy doing. However, parking in both places is both scarce and expensive.

And so is public transit.

Rather than tacking on an extra hour and $10 (minimum) onto my trip to take public transit, I just go someplace else. Driving is already a crappy option. You can't just make it a worse option than everything else and expect that to solve the problem. You have to bring another option up to the level of being only as crappy as driving.

Andrew, have you considered that Walmart situates themselves where parking is cheap precisely for that reason?

The first thing that stood out reading the post is that KMart. If they had a smaller parking lot, they would have smaller sales.

Parking is a utility offered so that your customers can deal with you. The same can be said for roofs, or opening doors. Or even shelving.

Derek

The Bay Area is exactly the sort of place where this type of policy change is most needed.

Perhaps so, but the point is that the Bay Area, and other regions like it, are the exception rather than the rule--the vast majority of Americans don't live in dense urban centers. That being the case, these kinds of changes might make those place more livable (particularly for those wealthy enough to pay the higher parking and congestion fees), they would have little or no effect on most of the country and, therefore, only negligible impact on overall density, mass-transit, fuel usage, etc.

To try to summarise an economically rational position:

1. legislative dictates on numbers of parking spaces (whether maximums or minimums) should be removed - as Tyler says the decision on parking ought to be made by the resource owner calculating economic costs and benefits

2. where the resource owner is government, parking management ought to be outsourced to the highest bidder who presumably will adopt pricing mechanisms that clear the market.

The biggest challenge I see are transition costs. The current reality is that land use in the US, with a couple of notable exceptions, is based on auto transport. Large changes in land use would be required to make transit a practical alternative for most trips - until that happens the economically rational outcome will still be plenty of parking, whether explicitly priced or not. Of course, if the market outcome (at least in the short term and in aggregate) looks similar to what we already have, it begs the question why government needs to be involved anyway.

Almost no commenters have grasped the core issues here.

The distortions (and 'economic freedom" issues, if you want to think in those terms) pointed out in Shoup's book occur at the corporate investment level, not at the marginal consumer level once the investment has been made. The government (via bureaucratic zoning and tax rules) forces people who want to build housing, stores or worksites to build a very high minimum level of parking and forces those people (in most cases) to let consumers/residents use that parking at zero cost. These "command-and-control" rules prevent the investors from making lower cost investments (with less parking and/or higher density). Because they are universal rules, developer X can't deviate from standard practice because everyone else in town will offer abundant "free" parking. Many business would choose to offer acres of free parking under any zoning rules (bundling the costs in its prices) but others would make other choices.

The key distributional impacts in Shoup's book is that these command and control rules seriously inflate urban housing and urban business costs. Lower income folks must pay more for housing, and it becomes harder to find economical housing close to urban jobs. The small businesses (retail or small scale companies) that are critical to urban economies are hugely impacted by the bureaucratic parking requirements.

Yes, the distortions occur almost exclusively in higher density urban areas, and these issues are irrelevant to most rural/exurban areas. But that's the heart of the "command-and-control" issue. The bureaucrats set these rules following a standard set of assumptions/priorities; distortions are minimal in some places and dreadful in others. The reality is that these rules follow the preferences/biases of traffic engineers, large scale real-estate developers, and all those established landowners who want to impose economic penalties on other/future landowners in order to artifically enhance the value of their land.

The externality arguments ("we have to build parking requirements on businesses into the zoning laws because otherwise their customers/employees will take over all the parking on my street")are largely specious. They explicitly assume that if you own a house on a given street, you have somekind of ownership right over the use of nearby taxpayer provided public streets. Ownership of a house or shop does not give you veto rights over the land use of other people's property, much less veto rights over the use of public street. There are no legitimate public externalities involved here.

I've been thinking about parking in downtown areas. A sign of urban decay is the demolishing of unused buildings for parking lots that will bring a low but steady income. This is the equivalent of stashing money in the matress. It is driven by myopia and panic and causes externalities.

Perhaps we already have for-fee parking in most markets where the market clearing price justifies enforcement costs.

Six Ounces: Slow travel, four smelling passengers, and standing on a crowded, hot, dirty, lurching bus are _negatives_, but they're not externalities of public transit. Crowdedness is indeed a negative externality of riding public transit, but a far smaller one than traffic congestion. (Smelly passengers are a negative externality of not showering, but not of public transit.)

As for the power lines...most cities are filled with power lines anyway, and many public transit systems don't add any--ever heard of a bus?

Mike G notes that McDonald's gives away free use of seats and tables, which raises a great comparison.

If local governments were to impose similar rules to seating at food outlets that it imposes on parking, it might require that food outlets must have two freely available seats for every 10 customers per hour. This would dramatically raise the costs of hot dog vendors and other small operators, and wipe many of them out. Of course McDonald's would continue to offer free seats because it matches their business model, but it would make many options that people prefer unavailable.

Don't worry, if Thoma had his way we would all be equally poor. There would be no rich to drive up the prices of goods and services beyond what the poorest person could afford.

Supply will simply increase to reduce price. There is already too much intervention to try to limit parking.

I find that many apartment complexes and many townhome communities in Fairfax county are built with insufficient parking. When there is a situation where you are simply unable to visit someone because there is no where to park.

Technology may change parking and paying for it and thereby allow higher economic efficiency.

One reason (of many) I hate driving and parking in San Francisco is that you must have a roll of quarters to street park in some places. I tend to visit when there is plenty of physically available parking , but paying for it is a hassle. If we get to the point where cars typically have a transponder that allows paying for parking easily (as used for toll roads now) variable rates will be easy, the "5 minutes late to return=big parking ticket" problem will disappear. Stores could, if they wished, charge for parking in their lot, but easily rebate the charge for customers without having an (expensive) attendant. Apartments could monitor parking in their spaces and charge rent accordingly.

No, government does not provide a good proxy for economic calculation ( Was that a laugh line?). Our local government suppressed downtown development for 15 years by a stupid parking policy. Eventually a new city council got rid of the requirements and many new businesses came in over the next decade. Too bad they didn't eliminate a lot of other requirements.

Not to mention that there are no seat belts on buses and no time to strap in a car seat even if there were seat belts, so it's not exactly safe for families with little ones.

Even without seat belts, due to their size, buses are vastly safer than driving, cycling or even walking to school. It is something on the order of 5 times safer to ride in a bus without a seatbelt than to be fully strapped in to a car with an adult driver. A teenage driver is about 20 times riskier than a bus (bicycles are around 100 times riskier).

Yes, I've used BART and Caltrain extensively in the past, like many Bay Area residents, as well as the AC Transit buses. That they work well enough (at a price/performance point) for the people that use them daily is true, but kind of a tautology. Their current level of use doesn't indicate to me that they will satisfy the needs of however many more people, if driving becomes an insupportable option.

I agree that the market mechanisms in question, as they're stated, should lead to better results. But I think there's an assumption that people need to get to their destination no matter what--SF's Financial District, for example--and will not just change destinations (by shopping or working elsewhere) when it becomes too difficult to get to. But by all means, let's try it. Experiments are good.

"Parking requirements are very common. But in my experience the "libertarian" commenters here are typical of many libertarians. When moving to a market solution will impact their daily lives they suddenly find government intervention much less objectionable."

Awesome story bro. Now would you care to quote specific comments that would support your assertion?

"If we don’t give away cars, why give away parking spaces?"

I read somewhere, perhaps on this blog, that one could not buy a car in Tokyo without first being able to demonstrate that a parking place had already been procured.

Comments for this post are closed