Parking Economics

3/22/2013 12:51:00 PM
Matt Yglesias raises an interesting issue about the economics of parking. It is a common topic on his blog, actually, because Yglesias loves car-less big-city life and thinks everyone else should too.

Now, I think that Yglesias has a legitimate point about the inefficiency of regulations requiring businesses to provide on-site parking quotas. Such regulations are premised on the idea that parking is somehow a public good--something that private markets are no good at supplying. But, the regulators are wrong. Parking is both excludable and exhaustible, meaning it is very much a standard private good--something that private markets are typically very good at supplying.

That said, I think Yglesias in general goes too far. Even though parking spaces are private goods (or does it make more sense to call it a private service?) there are significant externalities involved. For one, there is the externality of proximity. I have written previously that its actually pretty difficult to determine what the construction of a parking lot will do to the surrounding area--on the one hand, values will rise because people want to be able to park close to where they are going, while on the other hand values will fall because parking lots are ugly, dirty, horrible things. Presumably there is some Goldilocks zone around parking lots where businesses are neither too close nor too far from the parking, maximizing their values.

In addition, I would also argue that there is a search cost externality that is distinct from the proximity externalities. The more parking that is in the neighborhood, the easier it is to find a parking space, and the lower the search cost of finding one. Neighborhoods with little parking impose a variety of costs on consumers: they spend longer hunting for a space, suffering (sometimes considerable) loss of time and whatever value that has to them, loss of gasoline (or electricity for Tesla drivers), increased hazard of accidents as they compete for tiny parallel park street-side spaces, increased walking time since the parking space is less likely to be near the destination, and a host of other smaller costs (like increased erosion of the break pads).

The problem is this: a new business entrant in a community is not going to consider the impact of their business on the parking availability for surrounding businesses, meaning that they will not choose socially optimal locations. Entrepreneurs may respond to this by constructing new parking lots, but that doesn't fix the problem--even more entrants will overcrowd the "Goldilocks" zone around the new lot, meaning that the ratio of businesses to parking spaces will still remain too high. The flip side of that is that potential customers will shun the neighborhood due to a lack of available parking, leading to inefficiently too few customers per business in the area.

The lesson, I think, is that cities need zoning regulations that recognize that real estate involves a massive amount of externalities of all kinds. But they also need stop treating parking spaces as if they were a public good.