In 2012, Portland’s Bureau of Planning and Sustainability set out to answer a simple, urgent question: how much do apartment rents go up when you add parking?
The answer: up to $750+ a month (in 2012 dollars), or $1,000+ per space, 65% more than if there were no parking. Even at the high end of that figure, it furnished only 0.75 parking spaces per unit, less than the 1–2 spaces often required by law. The study assumed unit sizes of 550 sq ft., about the size of a studio.
Urban parking spaces can cost $200–300 in monthly rent to site, construct and maintain according to the Victoria Transportation Policy Institute. Those figures, unlike the Portland study, don’t include opportunity costs — the money missed by not building more profitable housing instead of unprofitable parking.
To be sure, the higher Portland figures of $800–1200 per space seem too high. But even $250 is much higher than what people routinely pay for parking in their own building. When developers are required to build more parking than people would buy at a price that covers costs, they reduce the list price of parking and raise rents instead.
Seattle Renters: Still Paying For Parking They’re Not Using
Clark Williams-Derry of think tank Sightline studied Seattle apartments, where parking is no longer required, and discovered that “car-free tenants still pay for parking”:
Landlords’ losses on parking, calculated as the difference between total parking costs and total parking fees collected from tenants, add up to roughly 15 percent of monthly rents in our sample, or $246 per month for each occupied apartment. Because landlords typically recoup these losses through apartment rents, all tenants — even those who don’t own cars — pay a substantial hidden fee for parking as part of their monthly rents…
At no development in our sample did the monthly parking fee paid by a tenant to rent a parking space cover the full amortized monthly costs of building, operating, and maintaining that space.
Evidently, even abolishing parking requirements is no assurance against excessive, underpriced parking. Renters paid $246 extra per month, due to an oversupply of parking.
In Seattle, one developer built two spaces for 30 units, and couldn’t fill either despite charging only $75 a month per spot, far below cost. Sightline researcher Clark Williams-Derry remarked “there’s a glut of parking and it’s hard to charge people the full amount to cover the cost.”
The Parking Maximum, And Its Flaws
To reduce rates of car ownership, some urbanists have urged imposing a cap on the number of parking spaces in new buildings — a parking maximum instead of parking minimums. These limit the number of spaces per unit — in San Francisco, these are limited to 0.5–1.0 per unit, depending on the neighborhood and number of bedrooms.
But there are problems with parking maximums:
- Maximums do nothing to discourage building parking below the maximum. If the problem is that developers are building parking beyond reason, a maximum won’t necessarily stop them from doing so. As we saw with one Seattle property, even a ratio of 0.03 (1/30) spaces per unit can be excessive.
- Maximums don’t prevent landlords from subsidizing parking through raising rent. We’ve already seen how parking in urban areas can raise monthly rents by $200+, yet new housing, even in the absence of parking requirements, isn’t charging enough to cover parking costs. That means properties are getting the missing parking revenue from tenants in the form of higher rents.
- Maximums ignore context. There may be occasional uses that would benefit from a higher volume of parking than allowed by a maximum. Maybe the units are geared to large multi-generational households, or to people with disabilities that are more car-reliant, or they sit in a hilly semi-suburban area like the Hollywood Hills, that isn’t as conducive to biking or transit.
- Maximums have compliance costs. Developers must submit their parking plans to have the city confirm they comply.
- Maximums put the cart before the horse. Seattle shows that when car-free travel is easy, less parking gets built, and solo occupancy vehicle use declines. Conversely, if you require people to forgo a car in a place with few reasonable alternatives, you may create more hardship, rather than less. Without parking requirements, the volume of parking built in new homes is an indicator that tells how easily residents feel they can get around without a car. If developers continue to build more parking than the city desires, it means the city has not done enough to make the alternatives better.
In an idealized housing market without parking requirements, developers would tend to build only the parking that would cover its cost, because tenants without cars would otherwise flee to cheaper apartments without parking.
But this has been slow to emerge in places like Seattle. It’s suspected that the financial backers and local residents are the ones demanding new buildings have too much parking. With virtually any other product (besides Uber), one need not tell firms to charge enough to recover their costs — but parking has proven peculiar.
The Myth of Unbundling
Urbanists like to recommend ‘unbundling’ — renting parking for cars and space for people separately. But charging separately for parking can still underprice parking. Until the net parking revenue exceeds cost (~$250–500 per space per month in new urban construction, on average), full unbundling has not occurred. Car-free renters are still overpaying. A parking maximum would not necessarily achieve this either. A different tack is needed.
Put A Floor Price on Parking
A price floor is a government price control on how low a price can be charged for a product. [Source: Wikipedia]
A floor would force new housing to charge users a figure close to the true price of providing parking. Based on the research cited, $250 per month is a reasonable starting point for dense cities, though any implementation should calculate its own figure.
Wikipedia says “a price floor must be higher than the equilibrium price in order to be effective.”
I am proposing an ineffective price floor: that the legal minimum price for parking is its cost. It’s a dumb idea that only makes sense because the residential parking market is even dumber. It oversupplies spaces and overcharges renters without cars, when cities want fewer cars and more economical housing. The closer the floor relative to actual cost, the greater the unbundling.
Why a price floor for parking?
- A floor forces developers, backers and residents to reckon with the true level of demand for unsubsidized parking. They will be much more judicious about building parking if they must charge a price people will balk at paying (due to the status quo of subsidized underpriced parking).
- A floor is progressive in effect. People without cars tend to earn less than car owners, though the difference is likely smaller among tenants in the same building. Eliminating the cross-subsidy of parking would mean lowering rents for tenants with less income.
- A floor discourages excess parking from the very first space, unlike a maximum.
- A floor doesn’t impose additional cost. The costs of building and providing parking would not change. The city would levy no tax and gain no revenue from a floor. And while some might want to make parking costlier, it would be politically difficult to pass a tax that makes parking substantially costlier.
- A floor can incentivize smaller and shared spaces. Smaller spaces are cheaper to build, and spaces shared among residents and office workers can collect more revenue. Consequently, these could have a lower price floor for residents, say 15% and 50% less, respectively. Smaller cars are more fuel-efficient and pedestrian-friendly, and sharing parking frees up scarce urban space.
- A floor redirects renters with cars to existing buildings and streets with excess spaces. As it is, most on-site and off-site parking is priced much less than the cost of building new parking. Why rent a space for $250 when you can get a space in a neighboring old building or on the street for $150 or free? Where this price gap exists, parking construction would plummet, at least for non-luxury housing. A floor tells the public the true cost of parking.
- Compliance costs are low. The developer would not need approvals for proposed parking, if any. Enforcement could be economical, by being complaint-driven: landlords found charging prices below the floor would be required to reduce rents by a commensurate amount and continue honoring the low parking price to car-free tenants for the remainder of their lease. That way, tenants are incentivized to notify the city of violations, and landlords are incentivized to comply.
A price floor for gasoline has also been endorsed by urbanists like Lisa Schweitzer and Dan Sperling of USC and UC Davis, respectively.
The floor has some potential pitfalls that could be minimized through good policy design.
- A developer might build too many spaces and then try to regain this missing revenue by raising rents.
However, I don’t think this will be a problem for two reasons:
1) The floor would induce much less parking to be built to begin with, so the total subsidy from rent to parking across all new construction will go down.
2) Consequently, there would be even more units with little to no parking in the greater real estate market, that would limit a landlord’s ability to overcharge on rent to cover losses on parking. (It’s hard to compete with the price of car-free housing is below your cost…)
- “Signing bonuses” offering “free” parking for signing a lease would be barred.
- A few sites will have a parking space that comes at little cost — you may have an odd nook that’s unsuitable for much else. At worst, the floor price would mean housing for all tenants on-site is subsidized by overpriced parking. Alternatively, the floor may not apply after say, the first parking space for every 3,000 square feet of land of the plot.
- If most people are still willing to pay above the floor, say $300–500 a month for parking, the floor will have little effect. However, this is a pretty remote possibility in dense cities, especially with the advent of ride-hailing and bikeshare.
Street Parking Reform
Ideal implementation of a pricing floor would rely on effective management of street parking, or else drivers will clog the streets hunting for free parking, and some residents will opt to pay $300 a month for parking instead of joining the car conga line. A finite number of permits could be issued based on demand, or allotted to property owners based on their amount of adjacent curbspace.
With a functional market in street parking, the decision of whether to build off-street parking would be straightforward: don’t build a space if the street price is below the floor, do build if the street price is above my cost per space, more or less.
To be sure, I propose the floor only because parking remains excessive and underpriced. Since the floor is intended as a transitional tool to make parking prices reflect their cost, it would be temporary, and expire in 10 or 20 years, enough to last through one economic boom and bust cycle. The basic principle could be extended to non-residential parking as well, with some modification.
Bans on non-compete agreements are widely considered beneficial, despite restricting the market. Its novelty aside, I believe a temporary floor on parking pricing is in the same vein, as a rule that both limits and strengthens commerce, while promoting social prosperity.
See also: The High Cost of Free Parking by Donald Shoup, My Car Pays Cheaper Rent Than Me