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