Government-Created Parking Externalities

In new research on parking policy in the Journal of Economic Geography, Jan Brueckner and Sofia Franco argue that residential developers should be required to provide more off-street parking in places where street parking contributes to traffic congestion. They argue that because traffic congestion is a negative externality, off-street parking requirements improve urban living. But street parking only contributes to traffic congestion when policymakers underprice it. Rather than addressing the externality of a government-created problem with new regulations, cities should price their street parking appropriately.

Brueckner and Franco’s argument relies on the assumption that off-street parking will be under-provided without government intervention. They argue that because drivers circle their destination looking for free or cheap street parking, minimum parking requirements make people better off. The authors are correct in arguing that street parking contributes to the problem of traffic congestions. Parking guru Donald Shoup estimates that drivers who are circling around looking for parking spots make up 30 percent of downtown traffic. Cruising for parking imposes an external cost on others by causing everyone to waste time in slow traffic.

While, Brueckner and Franco actually cite Shoup’s work on street parking and traffic congestion, they ignore his insight that when parking is priced appropriately, cities can eliminate this externality. The incentive to cruise for parking originates with public policy when city officials provide street parking at below-market prices. When parking prices are high enough, drivers will leave some parking availability on each block, eliminating the cruising problem without the need for minimum parking requirements.

San Francisco’s SFPark program provides an example of successful implementation of variable pricing based on demand. SFPark has the goal of maintaining one to two available spots on each block so that drivers don’t contribute to traffic congestion while they’re looking for parking.

When street parking is priced high enough that drivers don’t drive around looking for it, developers have the incentive to provide the amount of parking that their customers are willing to pay for. They are in the best position to determine if land values make it worthwhile to charge for this pricing, or if they would make more money by including free parking as an amenity for their customers.

Developers are not responsible for creating a traffic congestion externality. Rather, city policymakers create this externality when they provide free or underpriced street parking. They cause drivers to waste time and gas sitting in traffic. Parking is not a public good that needs to be publicly-provided; it’s both rivalrous and excludable.

In their efforts to propose policies that reduce traffic externalities, Brueckner and Franco ignore that off-street parking that cities require comes with its own negative externalities. Nothing does more to hurt the pedestrian experience of a neighborhood than vast swaths of parking lots, and lots contribute to urban heat islands and flooding. Shoup shows that in many cases minimum parking requirements exacerbate these problems by requiring more parking than developers would choose to provide. They lead to wasted land dedicated to parking that could be put to more efficient use as building space if that were legal. When policymakers price street parking appropriately, developers have appropriate incentives to provide the amount of parking that their customers are willing to pay for, rather than more or less as regulations require.

Rather than addressing the government failure of underpriced street parking with new distortionary regulations, city policymakers should fix the problem they have created by pricing street parking appropriately. Policymakers could decide to stop causing an externality of traffic congestion by using demand-based pricing. When they attempt to fix government-created problems with regulation, policymakers instead create new inefficiencies.