Urban Returns

The High Cost of Free Parking

I'm reading The Tome.  My favorite lines so far:

When planners set minimum parking requirements, they do not define demand and supply the way economists do.   For example, economists do not define the demand for food as the peak quantity of food consumed at free buffets where overweight diners eat until the last bite has zero utility.  Nor do economists, when asked for policy prescriptions, recommend that restaurants should be required to supply at least this quantity of free food no matter how much it costs.   Yet planners do define parking demand as the peak number of spaces occupied at sites with free parking, and cities do require developers to supply at least this number of parking spots, whatever the cost.

Cross-posted at Austin Contrarian.

Links

1.   Frumination works out the highway and parking capacity Manhattan would need to replace its morning rush hour subway capacity:

At best, it would take 167 inbound lanes, or 84 copies of the Queens Midtown Tunnel, to carry what the NYC Subway carries over 22 inbound tracks through 12 tunnels and 2 (partial) bridges. At worst, 200 new copies of 5th Avenue. Somewhere in the middle would be 67 West Side Highways or 76 Brooklyn Bridges. And this neglects the Long Island Railroad, Metro North, NJ Transit, and PATH systems entirely.

Of course, at 325 square feet per parking space, all these cars would need over 3.8 square miles of space to park, about 3 times the size of Central Park. At that point, who would want to go to Manhattan anyway?

See the neat map at the bottom of his entry showing how much land Manhattan would have to devote to parking.  Commuters of course would abandon Manhattan long before things reached this state.  But Manhattan would not be Manhattan in either case.  

Pointer from a reader.

(NB: Tyler Cowen thought this was interesting enough for a link . . . to Kottke, who merely quoted a snippet of Frumination's entry.  Jerk.  (Cowen, not Kottke.))

2.  A Detroit neighborhood reverts to prairie (images from DetroitYES):

(H/t the Urbanophile.)

3.  Professor Chris Nelson, Director of the Metropolitan Research Center at the University of Utah, projects  that the homeownership rate will fall to 63.5% by 2020, sparking intense demand for rban infill and redevelopment.   (Via Calculated Risk; no link to paper available.)

I think our homeownership rate is too high, a result of tax subsidies and land-use policies.  It ought to drop.  But it won't drop by several percent.   Richard Green, a professor at the Marshall School of Business at the University of Southern California (and no conservative), fisks Nelson's study. 

The new parking doctrine

For self-declared free-marketeers, we Americans have developed some deeply socialistic tastes.  We simply can't abide rationing some things by price.  Water.  Roads.  Parking.  Roads especially, but especially parking.

San Francisco's Livable City has put together a nice chart comparing standard American parking doctrine to a more market-oriented, or at least economically rational, doctrine:

Here's a fun exercise.  Go through the chart and replace "parking" with "roads."  The chart remains just as valid.   

Superficially, there is one significant difference between roads and parking:  government is the exclusive supplier of roads (except for subdivision streets); private developers supply most parking.  The market must be "choosing" the efficient amount of parking.  But this difference is an illusion, as everyone understands by now.  The government uses its own money to build too many roads or, more commonly, roads with too much capacity.  It uses minimum parking requirements to force private developers to build too much parking.  In fact, since it costs the government much more to build excess road capacity than to mandate excess parking capacity,  we should expect a greater oversupply of parking than of road capacity.

(Cross-post and comments at Austin Contrarian.)

Overparked

There are many reasons "too much" parking is bad for a downtown:

1. Parking raises the cost of new development, which means less of it.  This may be no big deal  for a city with a built-out downtown, but it is a big deal for Austin, which devotes so many downtown blocks to surface parking or stand-alone garages.
2. Parking not only raises the cost of new development, but it limits their size and density.  An on-site garage can only be so big to be practical.  A developer who wants to provide enough on-site parking to cover peak demand must first figure out how much parking he can build; only then will he know how much he can build of whatever it is he wants to build. 
3. Parking garages and surface lots blight the streetscape, triggering a negative feedback loop:   the surface lots and garages make streets less attractive to pedestrians, which drives the pedestrians away, which reduces demand for pedesestrian-oriented retail, which makes the streetscape even less attractive for pedestrians, etc. 
4. Subsidized parking -- i.e., parking provided below cost  -- distorts the market, encouraging an inefficient mix of driving and transit use.
5. Plopping ever more parking dowtown increases congestion.  The amount of land devoted to streets is fixed.  The amount of parking is not.  Increasing the number of parking spots but not the amount of street space means more cars per square meter of street, which in turns means more  congestion.   (This very interesting paper (pdf) by Michael Manville and Donald Shoup explores this argument in depth.)
6. Parking garages and surface lots are butt-ugly. 

There is one and only one counter-argument, but it should be taken seriously:   because we are so car-oriented, having too little parking will simply deflect businesses and shops away from downtown.  No matter how nice the sidewalks or inviting the buildings, a street is not pedestrian-friendly if it has no pedestrians.

I'm always willing to consider more evidence, but I don't think this argument holds for Austin.  There are good reasons to believe Austin's downtown parking market suffers from market failures.

But an even simpler analysis is to compare Austin's dowtown parking supply to other cities'.  If other cities get by with less, perhaps Austin could, too. 

Parking caps

I don't like parking minimums. They usually waste space and money by forcing developers to build more parking than their customers need or want.

I'm not a big fan of parking maximums, either.  The standard argument for them is that unrestricted parking encourages car-dependency and discourages walking, mass transit and pedestrian-friendly streets.  A city cannot force people to use a particular mode of transportation, though.  It can try, but when its fiat doesn't match market demand, people simply go elsewhere and the city does more harm than good.  It's better to let rising density and property values and good mass transit gradually and organically evict low-value uses like parking.  Reasonable design standards, like mandating ground-floor uses, can prevent parking from destroying the public space.

But I've recently heard an enticing argument for parking caps in downtown Austin.  It runs along these lines:

Downtown Austin has "too much" parking -- there are far more parking spots than cars, far more supply than peak demand.   Yet developers continue to build more on-site parking than their own projects need, even ignoring the ample supply of parking within walking distance.

All of this unnecessary parking is wasteful.  Developers waste hundreds of thousands or millions of dollars on parking spots that will never be occupied.  And practical problems with providing more than eight or nine stories of parking limit the height, scale and habitable space of new buildings.   

So why do developers do it?

Developers do it because their lenders make them do it.  Developers typically put up only 20% of the money for a project.  Equity partners front a second tranche of 20% or so, and lenders finance the remaining 60%.  This means that lenders have the greatest exposure.  Which makes them extremely risk averse.  They don't want a project to fail just because it lacks enough parking.

Lenders can read a parking study like anyone else.  Lenders know perfectly well that there is already ample parking in downtown Austin.  But they worry that if their project does not have plenty of on-site parking, it will be undercut by the next project that does.  So they require lots of parking -- even though the project might be cheaper and more profitable with less parking.

Excess parking downtown is thus the result of a sort of prisoner's dilemma.  Each  lender would be better off if all lenders required less parking, but without an ironclad assurance that they will do so, each lender must assume that the others will require extra on-site parking.  And then it must do so, too.  

The argument for a parking cap, then, is that it would resolve this dilemma by giving lenders the assurance they need to require less parking.  Then developers could build less parking, and new developments would be cheaper to build and provide more capacity to boot.

It's a neat argument.  I don't know whether lenders really would be as willing to put of money for projects with code-mandated maximums.  But that seems to me to be a discrete, empirical question that ought to have a definite answer.

Night parking

I'm on firm ground when I say that downtown Austin already has plenty of parking.  In 2000, 42% of all downtown garage spaces sat empty during peak hours.  That developers continue to build more parking than they need for their own developments suggests the parking market is broken.  Or that demand for self-contained parking is driven by lenders and tenants.  A developer has no incentive to build expensive structured parking it does not need.

A robust market for monthly parking contracts or daily spot parking might convince developers they can get by with less parking.

I'm not sure exactly what is blocking the development of this market, but part of the problem has to be free parking on nights and weekends.

Because the city charges for parking during the day, you can almost always find an open street spot.  But these are impossible to find at night (especially Thursdays through Saturdays), unless you are lucky enough for someone to vacate a spot as you drive by.  Charging for parking on nights and weekends would result in a better allocation of parking.  It would provide predictability for downtown visitors.  It would eliminate the extra traffic caused by drivers circling the block to find an empty space.  And, yes, it would also raise extra revenue for the city.

But charging for street parking would also encourage parking garages to open their spots to the public.  Some garages and the surface lots do open at night.  Many do  not, though, and who can blame them?  It's hard to compete with free parking.

Garages have to incur high fixed costs to provide spot parking -- e.g., an attendant or credit-card friendly gates.  They won't make this investment unless they believe they can get a return on this investment.  Increasing the demand for garage parking at night would lead more garages to make that investment.

This would increase the supply of parking when condo developments need it most.  Residents are home.  Ground-floor restaurants and bars are generating demand.  If there were enough public spots within easy walking distance, a developer might not need to cover peak demand.  That, in turn, would increase the demand for spot parking, which would encourage more garages to open, and so forth, creating a virtuous cycle and ultimately better use of existing parking.

First, figure out how much parking you can build

Austin's consultants are turning out reports faster than I can digest them.

ROMA's proposal for a permanent density bonus program downtown is worth a read.  The ultimate recommendation -- make residential developments pay bonuses for extra floor space -- is a bad one.  But the report contains some interesting tidbits, including this description of how parking requirements dictate building size:

It will be difficult to take advantage of a density bonus if the subject site is less than one-quarter block, as incorporating structured parking becomes extremely inefficient (space consumed per parking space yield is very high) and therefore costly. Off-site parking provisions made possible through a parking management or enterprise may change this in the future.

Current market and financing-driven parking practices which lead to high numbers of on-site parking spaces being required and built limit the ability for projects to achieve densities significantly above what the existing zoning prescribes. This is due to a number of things. First, few developments will build more than nine or ten floors of parking, as beyond this, accessing parking becomes cumbersome and inconvenient for the building users. Second, providing suburban or near-suburban parking quantities can cause projects to reach their height maximums sooner, which has the effect of reducing the amount of habitable space possible. Third, at some point the sheer cost of providing onsite structured parking becomes a deterrent to providing more habitable space/density.

In other words, figure out how much parking you can build and then you'll know how much you can build of whatever it is you want to build.    

I worked in downtown Houston right out of law school in the third tallest skyscraper in the United States outside of New York City and Chicago.  It had a paltry amount of parking, all below grade.  We plebes schlepped through the tunnel to a parking garage a couple blocks away. 

Houston by any measure has tons of downtown parking, but I don't recall every tall building in downtown Houston being erected in a big bathtub of parking.   Downtown Houston developers have somehow managed to figure out how to share parking (or have relied on their tenants to figure it out).  In Austin, though, each new development is built as if there were not another parking garage around for miles in any direction.  We might have more parking spots downtown than workers. 

ROMA says the market or lenders are driving developers to build more than the city requires.  That's consistent with my three-project "survey."  Some bright entrepreneur ought to figure out how to help these developers share.  

Downtown apartment owners should try this experiment

From City Beat:

Daimler will partner with the City of Austin to operate a car-share pilot program, Mayor Will Wynn announced this morning.

The city will set aside urban-core parking spaces for 200 of Daimler’s “Smart” cars. Rather than paying for the spaces, Daimler will let city employees use the cars for a number of hours that’s equal to the monetary value of the spaces. (That amount hasn’t been determined yet; it will be negotiated over the next few weeks, city officials said.)

The cars are small — two can fit in a typical parking space — and fuel-efficient.

The program will start in October and run for six months. Daimler will pay for fuel, maintenance and insurance during that time, said the city’s transportation director, Robert Spillar.

After six months, city officials will evaluate whether it saves money to lease the cars for the long term. Austin currently spends $6 million to $7 million on its fleet of 1,800 light-duty vehicles.

Employees would have to register to use the cars. They’d swipe a digital card across a car windshield, type in a pin code and drive.

Wynn said he hopes the program will reduce carbon emissions and encourage employees to use public transit or carpool into work and then use the Smart cars downtown.

Daimler started the program last year in Ulm, Germany.  It appears to be a succcess.

Downtown developers ought to be interested in this, too.  They pay bundles for structured parking -- $15,000, $20,000 or more per spot.  Building fewer spots would lower costs, which might make some marginal projects feasible.

Could a car-share program work for the apartment buildings downtown? Maybe.  The cost of purchasing a few cars every other year would be small relative to their annual operations budget.  They could recoup much (if not all) of the cost by renting out the cars to residents at an hourly rate.  The cost of storing the cars would be zero, since every apartment building has surplus parking spaces. And if fewer renters brought cars along with their futons, the apartments could be built with less parking.

Apartment managers could use the program to entice renters:  "Skip the car payment but not the car."  Getting to the rental car in the first place -- or the car to the renter -- is normally a big hassle, but it wouldn't be when the car was sitting in a garage ten floors down.

Developers will need to be persuaded.  They already take huge gambles by betting millions of dollars of their own money on markets that might not be there two years after they break ground.  This upfront gamble makes them (and their lenders) shun risky design.  If 900-sf apartments with granite countertops, stainless-steel fridges and 1.2 parking spots per unit have sold in the past, then that's what they'll build.

That's why it would it be neat to see one of the repeat players downtown experiment with the car-share program in an existing project.  Get some data.  If it works, then try it on a bigger scale in a new project.  Dispensing with lots of parking might even lower development costs enough to expand into lower-rent   markets.

Fact checking minimum-parking requirements

Tory Gattis opposes minimum-parking requirements (as do right-thinking people everywhere), but wonders whether they make any difference:

Developers in Houston know the market demands parking, and they'd be committing suicide without it. What I'd really like to see, if someone has it, is data on approved apartment projects of the last few years, and how their built parking compares to the legally required minimums. If many of them are right at the minimum, then relaxing the regs could have an impact. But if most projects have more than them minimum required, as I suspect they do, then relaxing the minimums may have little practical impact.

Good idea.  A lot of us (me included) assume that we'd have less parking if we relaxed minimum parking requirements.  But what does the evidence show?

I haven't pulled up site plans and parking charts for every new downtown development.   But I did check four new downtown developments:  360, Spring, Amli (Block 22), and the Gables at Park Plaza on Lamar, just south of Spring and the railroad tracks.

Downtown is a good place to start because downtown has reduced minimum-parking requirements.  (Residential developments downtown need just 60% of the parking the city requires elsewhere; retail, just 20%.)  If downtown developers are building less than the minimums required elsewhere, the minimums elsewhere are too high -- where "too high" means "more than customers are willing to pay for."  Mandating unnecesary capacity is expensive and wasteful. 

I'll address criticisms of this approach at the end.

The Gables at Park Plaza isn't eligible for relaxed parking because it is not zoned for downtown.  But it is mixed-use like the other developments and is adjacent to downtown, so I doubt it needs more parking than the other developments.  Think of the Gables as a control group of one.

To the numbers:

360

• 852 -- standard city minimum
• 466 -- reduced city minimum for downtown 
• 648 -- spots provided (76% of standard requirement)  

Spring

• 923 -- standard city minimum
• 368 -- reduced city minimum for downtown 
• 799 -- spots provided (87% of standard requirement)

Amli (Block 22)

• 667 -- standard city minimum
• 299 -- reduced city minimum for downtown 
• 430 -- spots provided (64% of standard requirement) 

The Gables at Park Plaza

• 587 -- standard city minimum
• 645 -- spots provided (not eligible for reduced minimum downtown)  

This is a small sample, I admit, but it suggests that the city requires too much parking outside downtown.  Both Amli (64%) and 360 (76%) provided much less parking than the standard minimum. Spring took just a 13% discount, but then it includes parking for an office development.

The Gables will have 58 more spots than the city minimum.  This suggests (as Tory hypothesized) that the developer thought market demand exceeds the city minimum.  But I'm not convinced that's true.  The Gables has seven stories of parking with roughly 90 units each, probably more for stories 2-7.  The Gables could not have met regulations with just six floors because it would have been short 30-40 spots.  Because the developer had to build a seventh floor anyway, it might as well have used the whole floor.  Hence the extra spots.

Note that the reduced minimums downtown appear to be below market demand, at least for residential projects. 360 provided 39% more than the minimum; Amli, 43% more.  Spring provided more than twice the minimum required, but then, again, it's also providing parking an office building.  Thus, I'm skeptical that we would see a reduction in parking if we got rid of downtown parking minimums, at least for condos.  (Of course, if the parking minimums don't matter, why not get rid of them?)

I can think of four objections to this approach.

First, four data points do not a sample make.   This is a fair criticism.  These conclusions are necessarily tentative.  Ideally, we would get a complete census of downtown projects, comparing parking supplied to downtown minimums as they changed over the years.  That's a project for a paid consultant. 

Second, some may argue that these downtown projects need less parking because they are mixed-use.  But because the City mandates very little downtown parking for retail and restaurants, being mixed-use just doesn't matter much.  For example, 360 had to provide only 23 spots for its retail and restaurants.  Suppose that 360 were purely residential.  If its developer cut its parking by exactly the amount of the minimum required for the retail/restaurant uses, then 360 would have provided 625 spots rather than 648 spots, and its minimum would have dropped from 466 to 443.  In that case, it would have 41% more than the parking minimum, rather than 39%.  That's not much of a difference.  (And even that 41% would be too high if the developer had internally set aside more than 23 units for the retail/restaurant uses).

The third objection is that we have parking minimums to protect neighborhoods from spillover parking that occurs when developers under-provide parking.  Downtown developments are not good example, the argument might go, because they are not surrounded by neighborhoods.  But the fact that downtown developers can't count on the spillover parking actually supports my approach.  Because developers cannot assume that other parking will be available nearby, they have to build enough parking to handle the anticipated demand. 

Finally, some may argue that downtown projects don't need as much parking because downtown residents drive less than average.  I imagine downtown residents do drive less.  But I doubt many of them have given up their cars yet.  Austin is still too auto-centric.  Even if a handful have gotten rid of their cars, I don't think developers would have counted on this when planning their parking.  (It will be interesting to see what effect light rail has on auto ownership downtown.)

Again, I acknowledge that my sample is awfully small.  We need more data.  But it is consistent with the proposition that the city mandates way too much parking outside downtown.

Taxing land rather than buildings

The Overhead Wire points to this at the ULI blog:

How about restructuring the property tax across America to install a two-tiered system? More tax on those horizontal pieces of empty land and asphalt, less on the buildings. That is, reduce the tax rate on homes and other improvements, and substantially increase the rate on the site value. I think such a system would induce more compact development and more infill work.

I've floated this before for downtown property in order to discourage surface parking lots.  One commenter kindly pointed to this institute devoted to promoting  this idea.  I haven't had time to study those materials yet.  

Obiously, I like the idea, but, thinking it through, I envision one problem.  In order for the tax to be revenue neutral, the tax must be equal to the tax on a fully-developed property.  Suppose a $95 million office building is built on a $5 million dollar lot.  Annual taxes are assessed at 2.5% (for simplicity's sake), so the total tax is $2.5 million.

A revenue-neutral tax would require that a $2.5 million tax be levied on the vacant $5 million lot.  But how do we determine the value of the improvement before it is  built?  I.e., how do we determine that the value of the "appropriate" capital improvement is $50 million, $100 million or $200 million?

The tax system has to be consistent.  The only solution that comes to mind is to assume a build-out to the maximum zoning entitlements.  That would incentivize property owners of vacant or under-developed properties to campaign for lower entitlements.  In other words, they would seek a cap on the permitted density.  This is the opposite of their incetive today.

Perhaps that wouldn't be a disaster -- it would lead to development at a uniform scale, which would be an aesthetic improvement of what we have today.  But I'm not sure the trade-off for lower density (and thus higher prices for existing space) is worth it.

Perhaps Pittsburgh or other jurisdictions that have implemented this type of taxation have come up with a better solution.