Several of my friends turned 60 this year (I’m not there yet) and to celebrate, 10 of us (five couples) will be sharing a villa in the Italian countryside for a week in September. In fact, my mind is already in Italy, to some extent, as I’ve been reading guidebooks, pulling out old magazine clippings, surfing the Internet, and—perhaps most fun of all—using Google Maps to get a bird’s eye view of some small Italian towns we plan to visit.
One thing Google Maps reveals about these small towns is this: Because they were developed long before the birth of the automobile, parking spaces are scarcer than in most American towns. Commonly, there are small municipal lots scattered throughout the town—particularly toward the edges—and frequently these cost money.
The result is towns that are particularly pedestrian-friendly.
Shedding some welcome light on the economics of parking in the U.S. was an article in the New York Times last week titled “Free Parking Comes at a Price” that referenced a book published in 2005.
That book, by Donald C. Shoup, professor of urban planning at the University of California, Los Angeles, is titled, “The High Cost of Free Parking.
” It’s 752 pages long.
I’m not planning to read it. Planning my Italian trip is more fun than reading 752 pages about parking economics (and politics). But I have read summaries of it, and I think the main idea is worth passing on.
In short, just as there’s no such thing as a free lunch, there’s no such thing as free parking.
The costs of free municipal parking lots are paid by taxpayers—even those who don’t drive.
The costs of free commercial parking are borne by businesses, and thus by their customers.
And the real unseen costs come from the unintended consequences that are suffered by all of us. In short, legally mandated parking artificially increases supply and thus reduces the market price of parking spaces, often to zero.
In big densely populated cities like New York and Chicago, people are accustomed to paying high prices for parking. These high market prices not only spur the development of efficient public transportation networks, they also enable higher-value use of downtown space.
But where low-value public parking is subsidized by governments, Professor Shoup argues that we forgo the true value of space that could be better utilized. He calculates that the value of the free-parking subsidy to cars in the U.S. was at least $127 billion in 2002.
If we eliminated that subsidy, basically by repealing all the laws that mandate the provision of parking spaces by businesses, and by moving to make drivers pay the real costs of their parking spaces, the prices of some spaces would rise dramatically. People would drive less. There would be less traffic congestion. There would be more room for people and business … and American towns would look just a little bit more like those small pedestrian-friendly Italian towns I plan to visit.
The basic concept to remember is that government subsidies distort market-pricing activities, and thus artificially increase demand.
We saw it in the housing market, where the perception of government mortgage guarantees increased demand for housing while lenders and borrowers joined in the party … with disastrous effects.
We’ve seen it in the higher education market where government loans have artificially increased the demand for college degrees and in the process pushed up tuition prices at both public and private schools. (Just last week, the stocks of for-profit schools tumbled—look at COCO, DV, ESI and STRA, for example—when the Department of Education revealed it might reduce lending to students at for-profit schools with low repayment rates, providing a perfect illustration of the link between government subsidies and perceived values.)
And we’ve seen it in the farming industry, where government subsidies for corn result in cheap high-fructose corn syrup, which contributes to the epidemic of obesity in our country.
Note: The reason government subsidies result in lower prices for corn and higher prices for houses and education is due to the fact that in the case of corn, the subsidy goes straight to the farmer. (If you want to see a further analysis of the effects of U.S. agricultural subsidies in a future Cabot Wealth Advisory, let me know.)
Getting back to Professor Shoup, his main suggestion (remember, this was five years ago), is that we implement market-base pricing for parking whenever applicable. Ideally, these are smart parking meters that communicate with each other regarding current demand and set rates accordingly.
Here in Salem, I sometimes drive downtown after work, and I’m happy to get “free” parking in metered spots after 5:00. But I know the city would get more revenue—and all interests would be better satisfied—if parking rates were based on real-time demand.