Monday, February 1, 2016

Economics of Free Parking

There's an argument a few blocks down from where I work about whether to install parking meters in a small-but-busy shopping district, and judging from some of the rhetoric, we should give strong consideration to amending the Declaration of Independence so that we can be endowed by our Creator with certain unalienable rights, Life, Liberty, Free Parking, and Other Less Important Aspects of the Pursuit of Happiness. Eren Inci asks "Who Pays for Free Parking?" in the Milken Institute Review (First Quarter 2016, pp. 66-74). He starts with the obvious point that a parking space can be a a substantial resource.
"For starters, most economic transactions you make depend in part on the ability of someone (you, a long-haul trucker, the UPS delivery person, an ambulance driver, and so on) to park. And stationary vehicles occupy vast amounts of land everywhere in the world. Indeed, a simple back-of-the-envelope calculation suggests that, in the United States, parking takes up more space than the whole state of Massachusetts. In Europe, where cars are smaller and fewer in number, parking still takes up an area half the size of Belgium."
The discussion in this article focuses on free parking in two particular contexts: Inci suggests that there is a plausible if unexpected economic justification for free parking at shopping malls, but not in residential urban areas. Here's his explanation on free parking at shopping malls.
 One can think of shopping as participation in a lottery of sorts in which shoppers either win (find what they’re looking for) or lose (don’t find it). Shoppers who make the purchases leave the mall satisfied. But, of course, not all mall trips have happy endings: sometimes shoppers leave emptyhanded. Since they “pay” for parking only by making purchases at prices that include an implicit charge for parking, those who buy nothing don’t pay for parking. Thus, in a very real sense, bundling the cost of parking with the price of goods is a form of insurance for shoppers: if they don’t buy, they pay nothing; if they do buy, they effectively pay for the parking of unsuccessful shoppers as well as their own. ...  Shopping-mall parking may appear to be free, but in fact you pay for it every time you buy something at the mall. Happily, though, what looks like distorted pricing serves the broader interests of society as well as those of the mall owners.
Here's the argument about free parking in urban areas:
Although there has been a trend away from free to paid curbside parking almost everywhere as municipalities attempt to generate revenue and ration scarce space, there is still an enormous amount of free curbside parking available.But if you live in a place with free parking, don’t be so sure you’re the lucky one. Our research suggests that at least some of the value of that free parking is reflected in your rent or in the market value of your home. So, the issue is not whether you pay, but how you pay – directly or bundled in the cost of housing. This will all be clearer if we first look at onsite parking that is sold as a bundle with housing. Most cities impose minimum parking requirements that determine how many parking spaces each new land use must include. In most American cities, developers must provide at least one and, in many cases, two spaces for each housing unit. This is no small deal: after taking into account the space allocated for ramps and maneuvering, the area occupied by two parking spaces is usually larger than a two-bedroom apartment. ... In fact, Michael Manville of Cornell University found that in San Francisco bundled parking increases the average asking price for an apartment by $22 per square foot. ... Curbside parking in front of your house may also appear to be free, but in fact its costs are already capitalized in housing prices and rents. Although I can’t claim the last word on the subject, our estimate hints that free curbside parking produces negative welfare consequences.
There's also an interesting discussion of what happened in Istanbul, when the city decided to move away from an "informal" system of paying for parking, in which "self-appointed parking attendants stood by the road and demanded money to “protect” parked cars," to a formal anc city-run system of paying for parking.

For a couple of earlier posts on the economics of parking, see: