Do Parking Requirements Significantly Increase The Area Dedicated To Parking? A Test of The Effect of Parking Requirements in Los Angeles County Bowman Cutter Pomona College Sofia F. Franco Universidade Nova Lisboa Autumn DeWoody UCR July 23, 2010 SCW Conference Moscow

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Outline Motivation Analytical Results Methodology of Empirical Part & Data Set Empirical Results Conclusions 3

1. Motivation Most cities in the US have parking standards which require developers to provide a minimum amount of off-street parking per square foot of floor space 4

Off-Street Parking Requirements for Development are Common Justification Development: Parking spillover and traffic congestion with cruising for on-street parking Solution: require spaces to meet peak demand MPR set by city planners from standardized planning manuals: measure parking and trip generation rates at peak periods with ample free parking and no public transit 5

Distorts land use decisions Makes development in areas where land has a high value much more expensive and less profitable Increase impervious surfaces: More Driving Suburban sprawl. Loss of open space. Water quality degradation, Increased flooding Decreased groundwater recharge Heat island effect Artificially large parking supply, Pedestrian unfriendly. Decreased cost of car use $ billion annual subsidy (Shoup 2005)) More air pollution Possible Effects of MPRs Variety of large costs and distortions associated with MPR 6

Limited Evidence for Effects To our knowledge, the evidence that parking requirements increase the amount of parking spaces built is limited to a few case studies (Shoup (1999), Willson (1995)) The existing literature does not test the effect of parking minimums on the amount of lot space devoted to parking Little effort devoted to the theoretical analysis of the efficiency effects of MPR Graphical analysis by Shoup and Pickrell (1978) and Feitelson and Rotem (2004) 7

2. Goals of the Paper First: develop an analytical model of building construction that includes MPRs, FAR restrictions and endogenous decision-making over surface versus below-ground parking Cities and MSA have very different types of regulations that affect the usage of land and gov regulation affect property values 8

Empirical Second: Test two hypothesis: a) whether parking requirements cause an oversupply of parking b) whether reductions in parking standards are likely to lead to reductions in the amount of parking supplied by new development 9

3. Analytical Model We model separately the maximizing profit behavior of city center developers and suburban developers Parking and floor space are bundled and rented as a package to tenants of a building Two types of parking structures: underground parking or surface parking Surface parking generates negative external costs Floor-to-area (FAR) restriction 10

Analytical Results 11

Type of Parking Provided Surface parking is more efficient if the price of land is relatively low Low-density office-commercial structures with large surface parking lots such as shopping malls are mostly found in suburban areas 12

Central Business District Developers voluntarily supply parking space if revenue cover its costs, even in the absence MPR MPRs constitute an indirect tax on building square footage which creates a disincentive to high-density development MPRs may drive the total square footage allowed and potentially inhibit density below what a FAR limit permits FAR MPR 13

Suburban Areas External costs: social marginal cost of parking > private marginal cost External costs associated with surface parking will be exacerbated because MPRs exacerbate the market oversupply of parking 14

Testable Hypothesis In equilibrium, the shadow price associated with the MPRs satisfies: Marginal value of Parking (higher the larger the building floor area) Marginal value of additional land + marginal parking construction costs 15

Empirical Model 16

4. Empirical Model Focuses: Office-commercial-industrial property market Within suburban areas of LA Surface Parking Lots 17

Data Sets Parcel-level sales data on non-residential property sales from 1997 through 2005 over a significant portion of Los Angeles County was obtained through Costar Group ( Dropped all properties with likely parking structures. Median non-residential sales price by zipcode. Office parking requirements for some cities. 18

Variables 19

Methodolgy 20

Empirical Tests a) whether parking requirements cause an oversupply of parking (bidding) b) whether reductions in parking standards are likely to lead to reductions in the amount of parking supplied by new development 21

Parking Regulation Indirect Test Analytic model outlines the basic framework: Similar to Glaeser, Gyourko and Saks (2006) Estimate of the marginal value of parking and land comes from hedonic equation The marginal cost of asphalt paving: $2.50/sqft in

Variables 23

Variables: summary statistics 24

Marginal value of parking and land: Spatial Hedonic Model Spatial dependence: inherent in our sample data, measuring the average influence of neighboring observations on observations in the vector LP. Includes both a spatial lagged term as well as a spatially correlated error structure 25

Empirical results 26

*** significant at 1%, absolute value of z statistics in parenthesis Coefficients consistent across individual property type regressions Hedonic Price Models 27

Propose: gap between average marginal parking cost and the average marginal parking value is indicator of bidding MPRs 28

Parking Value Appears Less than Parking Cost for Many Properties 29 Parking requirements binding majority of properties ~88% of properties appear to have binding MPR Industrial properties: binding for ~ 80% Service Retail properties: binding for ~99% Social loss of MPR- mismatch

5.Conclusions A simple theoretical model of optimal development of a parcel implies that the marginal value of parking should be less (equal) to the marginal value of land for a parcel plus the construction cost of parking in the presence (absence) of binding minimum parking regulations We test this proposition for a multi-year dataset of sales and for five different property types using a spatial error model 30

Conclusions We find that for the majority of properties a null hypothesis of equality between marginal parking and marginal land plus construction costs is rejected at a 5% significance level This supports the idea that minimum parking requirements significantly affect the amount of parking on a parcel 31

Conclusions We also find that reducing parking standards for offices, general retail and service retail will be a successful strategy in encouraging new development to provide fewer parking spaces on average. Such a strategy will be less successful for shopping retail which tend to provide more parking and is less sensitive to MPRs. It will also be less successful for industrial properties. 32

Conclusions If the goal of minimum parking requirements is to prevent parking spillover and traffic congestion from new development, our results suggest that MPRs are a blunt and inefficient form of parking management Appears many developers would be willing to pay substantial in-lieu fees. 33