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Parking Demand Management Strategies and Pricing

"In principle the charge [for on-street parking] should represent the short-run marginal social cost of occupying the space, consisting of the probable inconvenience imposed on others in terms of having to spend more time searching for a space or having to park further from one's destination, or to give up entirely on the use of a car for the trip"

- (Vickrey, 1992 cited in Roth, 2004).

Researchers such as UCLA Professor Donald Shoup have emphasized that the provision of free parking only serves to perpetuate automobile dependency, increase congestion, and lead to economic inefficiencies. According to Shoup, an estimated 99% of parking in the United States is free (2005), although the true costs of parking (i.e. construction, maintenance, etc.) are passed along to consumers and taxpayers via increased taxes and higher prices for goods and services. Moreover, by driving up the perceived demand for parking, free parking and the surface lots that usually supply it have encouraged a pattern of low-density development. This low-density pattern is difficult to serve effectively or efficiently with transit. With each building surrounded by large parking lots, there is little incentive to walk or bike between or to buildings. With no good alternative, the demand for driving and parking is reinforced and the pattern of low-density development with ample free parking continues.

Additionally, studies from abroad and in the US have concluded that the price of parking and the walking distance to destinations are the two most important factors in the decision to park or not (Shoup 2005). While decreasing single-occupant drivers in the CBD, a slightly increased parking price is not likely to reduce overall travel in the CBD (Ibid). Some people will simply change their mode or car pool.

Parking management strategies can use financial instruments to modify the price of parking to reflect its true market value, either by directly regulating prices or by imposing taxes and fees. Using such market mechanisms has been demonstrated to be quite effective in managing parking demand; in one study, it was found that a 1% increase in parking fees resulted in a 0.3% decrease in demand for parking (Kuzmyak et al. 2003). Also, allowing a reduction in required parking for developers who "unbundle" parking can reduce demand. Unbundling parking means that developers or landlords can sell or rent parking spaces apart from the units in a building, giving discounts to tenants who use fewer spaces.

From the developer's point of view, there are three primary reasons to charge for parking:

  1. To recover some of the costs for developing and maintaining the parking
  2. To manage the use of parking by different users (such as customers vs. employees, long-term vs. short-term parking)
  3. To manage travel demand

The second reason – to manage parking use – is often the primary reason developers charge for parking. To make paid parking economical to the developer, however, the prices need to be high enough to cover the costs associated with collecting the parking fees (Smith 2005).

Variable rates

Like other parking management strategies, applying variable rates to parking can be used to influence traveler mode choice, time and amount of travel, and to shift drivers from a congested location. Since only 5% of US commuters pay for parking (Shoup 2005), applying a nominal fee to parking is sure to have a significant effect. Careful consideration should be given to each location as negative effects are possible. A parking price that is set too high may shift drivers to other locations, rather than to alternative modes. The goal is typically to reduce single-occupant car travel, but not to reduce the number of people who travel to a location. Balancing the characteristics of the site, with parking programs, incentives, and pricing is crucial to achieving that goal.

Some see the abundance of free or relatively cheap parking as a de facto subsidy to automobile drivers, encouraging greater automobile ownership and vehicle miles traveled via private automobiles. Variable pricing seeks to apply a free market-inspired pricing system to more efficiently allocate parking supply, with higher prices charged at times and locations of peak demand. Variable pricing has the promise of both effective congestion mitigation and the ability to raise considerable sums for the public sector.

In variable pricing scenarios, it is estimated that variable pricing could raise large revenues for northeastern Illinois. If there are over 3.2 million off-street spaces, and numerous on-street spaces, we can make the conservative estimate that 2 million of the spaces are free. Charging a nominal fee of $1 / day for weekdays only would provide $520 million annual revenues for the region. As mentioned previously, Shoup estimates that 99 percent of parking in the nation is free. If this statistic holds true for northeastern Illinois, the number of free spaces is probably closer to 3 million, which would bring our estimate of $520 million up to $780 million. These estimates are for illustrative purposes only; pricing should be determined on a local level, with consideration of transit facilities, biking and walking amenities, land value, and demand.

Favor short-term parking

Pricing fees should be designed to encourage short-term parking and high turnover of spaces within the central business district. Shoup compares under-priced on-street parking to rent-controlled apartments: "they are hard to find, and once you find a space you'd be crazy to give it up" (2007). Since these spaces are so hard to find (and desirable), people end up spending excessive time "cruising" for a spot. This leads to congestion and pollution, as well as increasing time spent getting to a destination. It is estimated that almost 1/3 of traffic in downtown New York consists of people "cruising" for a parking space (Ibid).

If parking is priced to encourage short-term parking, some travelers would reduce the amount of time spent at a location and many long-term parkers and commuters would go directly to a garage. With a goal of 15% vacancy, cities could minimize the amount of time spent searching for a space (i.e. traffic congestion) and encourage high turnover of spaces.

Elimination of Employer Parking Subsidy

The vast majority (87%) of commuters in the US drives to work and most of those commuters drive alone (American Community Survey 2005-2007). Researcher Donald Shoup estimates that 95 percent of all automobile commuters – driving alone or carpooling – park free at work. This parking is not actually free and in 2002 the estimated total annual subsidy for commuter parking paid by employers and/or developers was $36 billion (Shoup 2003). In our own region, a 1998 study commissioned by the RTA found that "free" parking at suburban office buildings actually costs $65-70 a month. In all of the cases studied, parking was free and generally was not even mentioned in the leases (Regional Transportation Authority 1998). Under current US federal tax law, it is possible for employers to subsidize employee parking as a deductible business expense; creating a controversial incentive to drive (Vaca and Kuzmyak, 2005). If we assume that 95% of the 3.2 million off-street commercial and industrial spaces in our region are free, and that these spaces are costing us about $65 a month, this amounts to a regional annual cost of $2.37 billion, subsidized by employers and most likely absorbed by consumers in the higher cost for goods and services.

Employers can help encourage their workforce to use other modes of transportation by converting the parking subsidy into cash payments for those employees who do not drive. There is an incentive not to drive – cash – but no actual charge for parking for those who do drive. They forgo the extra money but are not otherwise penalized. California law requires many employers to offer this option and in studies of before and after, parking cash out reduced driving to work by 11 percent (Shoup 2005). Federal tax law allows for parking cash out (the cash is taxable, the parking space remains tax exempt), so employers nationwide can take advantage of it (USEPA 2005).

Parking cash out can also save employers/developers money, particularly in the case of employers who lease their parking. With fewer employees driving, there is less need for parking spaces. In an analysis of eight parking cash-out programs in California, the programs helped to reduce commuter parking demand, solo driving, and vehicle miles traveled by 11, 17 and 12 percent, respectively (Shoup, 1997). Often the cost of providing a cash-out option is minimized by the reduced need for expensive parking. In addition to eliminating the parking subsidy for drivers, employers can also reduce the parking rate for carpooling employees.

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