1. Who Is Really Paying for Your Parking Space? Estimating the Marginal Implicit Value of Off- Street Parking Spaces for Condominiums in Central Edmonton, Canada 44th Annual Conference of the Canadian Economics Association, May 28 - May 30 Presenter: Owen Jung Email: owen.jung@ic.gc.ca Based on a directed research project submitted to the Faculty of Graduate Studies and Research, University of Alberta, in partial fulfillment of the requirements for the Degree of Master of Arts (Economics). The judgements and conclusions made in the project are solely those of the author, and are not necessarily endorsed by the University of Alberta or by any other agency.

2. Introduction Housing affordability: major social and economic issue across Canada. Housing affordability: major social and economic issue across Canada. Is parking provision connected to housing affordability? Is parking provision connected to housing affordability? Parking spaces costly to construct. Parking spaces costly to construct. Minimum parking requirements may be overgenerous -> excessive parking/costs. Minimum parking requirements may be overgenerous -> excessive parking/costs. Assumed that consumers are affected. Assumed that consumers are affected.

3. Problem Statement How much are consumers actually paying for off-street parking spaces? How much are consumers actually paying for off-street parking spaces? Often no explicit market (i.e., spaces bundled with dwellings). Often no explicit market (i.e., spaces bundled with dwellings). Estimate the marginal implicit value of bundled parking spaces. Estimate the marginal implicit value of bundled parking spaces.

4. Subject Area Condominiums (multi- family dwellings). Condominiums (multi- family dwellings). Edmonton: Downtown and adjacent neighbourhoods. Edmonton: Downtown and adjacent neighbourhoods. Land prices are a major cost factor. Land prices are a major cost factor. Map created using Google Maps

5. Parking Requirements in Edmonton First introduced in 1961; relatively modest. First introduced in 1961; relatively modest. Growing scarcity of parking in 1970s -> review of parking standards. Growing scarcity of parking in 1970s -> review of parking standards. The City of Edmonton concluded residential parking standards for multi-family dwellings insufficient. The City of Edmonton concluded residential parking standards for multi-family dwellings insufficient. New parking standards with significantly higher parking requirements were adopted in 1980; largely unaltered since. New parking standards with significantly higher parking requirements were adopted in 1980; largely unaltered since.

6. Survey of Parking Development Costs Could be very substantial Could be very substantial Aboveground parking garage per space: $13,650 (median), $23,400 (75 th percentile) in 2007 (RSMeans); $15,000 (typical) in 2005 dollars (Litman) Aboveground parking garage per space: $13,650 (median), $23,400 (75 th percentile) in 2007 (RSMeans); $15,000 (typical) in 2005 dollars (Litman) Include cost of land, costs can quickly escalate (>$50,000 per space). Include cost of land, costs can quickly escalate (>$50,000 per space).

7. Survey of Parking Development Costs (continued) Surface parking: cost primarily dependent on land costs (likely high in downtown). Surface parking: cost primarily dependent on land costs (likely high in downtown). For underground parking, no additional land required but high construction costs per space: $25,000 (Litman), €50,000 to €80,000 (Wentink). For underground parking, no additional land required but high construction costs per space: $25,000 (Litman), €50,000 to €80,000 (Wentink). Development costs could be substantial, regardless of type. Development costs could be substantial, regardless of type.

8. Too Many Parking Spaces in Downtown Edmonton? Bunt & Associates (2008) found a 50% utilization rate at residential developments at peak usage. Bunt & Associates (2008) found a 50% utilization rate at residential developments at peak usage. Ranked 12 th among CBDs around the world in parking spaces per hectare (Kenworthy and Laube, 1999). Ranked 12 th among CBDs around the world in parking spaces per hectare (Kenworthy and Laube, 1999). Very plausible that there is excess parking in downtown Edmonton. Very plausible that there is excess parking in downtown Edmonton.

9. Stakeholders Consumers (higher price) Consumers (higher price) Developers (higher development costs) Developers (higher development costs) Land owners (reduced economic rents) Land owners (reduced economic rents)

10. Oakland Study Bertha (1964) studied the effects of the introduction of a parking requirement. Bertha (1964) studied the effects of the introduction of a parking requirement. Found that consumers faced higher rents (increase unknown). Found that consumers faced higher rents (increase unknown). Developers: median profitability dropped over 50%. Developers: median profitability dropped over 50%. Land owners: effect inconclusive. Land owners: effect inconclusive.

11. Jia and Wachs (1998) Used real estate transactions in San Francisco. Used real estate transactions in San Francisco. Applied a hedonic model to estimate implicit price of the presence of off-street parking. Applied a hedonic model to estimate implicit price of the presence of off-street parking. Found that off-street parking increased the price of single/multi-family dwellings by $46,000/$39,000 (1996 dollars). Found that off-street parking increased the price of single/multi-family dwellings by $46,000/$39,000 (1996 dollars).

12. Data Sources Two real estate data sets. Two real estate data sets. First set: Multiple Listing Service (MLS); collection of data from realtors. First set: Multiple Listing Service (MLS); collection of data from realtors. Second set: ComFree Private Sales; condo listed by owner. Second set: ComFree Private Sales; condo listed by owner.

13. Data Description (MLS) 465 observations (May 2005 to Jan 2006). 465 observations (May 2005 to Jan 2006). Included selling price, structural attributes, neighbourhood influences, amenities included with condo fee. Included selling price, structural attributes, neighbourhood influences, amenities included with condo fee. Ambiguity over the term “Parkade”; merged parkade and underground parking spaces: “Parkade-style” spaces. Ambiguity over the term “Parkade”; merged parkade and underground parking spaces: “Parkade-style” spaces. Excluded address information. Excluded address information.

14. Data Description (ComFree) 84 observations (December 2008). 84 observations (December 2008). Data available from online listings included asking price, address, and structural attributes. Data available from online listings included asking price, address, and structural attributes. Each observation supplemented with Census 2006 data. Each observation supplemented with Census 2006 data. Addresses used to measure distances from “places-of-interest” (e.g., City Hall). Addresses used to measure distances from “places-of-interest” (e.g., City Hall).

15. Data Shortcomings MLS Address withheld for privacy concerns. Address withheld for privacy concerns. Cannot supplement with census data. Cannot supplement with census data. Subjective evaluation. Subjective evaluation. Cannot check for spatial autocorrelation (see next slide). Cannot check for spatial autocorrelation (see next slide).ComFree Very small data set. Very small data set. “Snapshot”, not time period. “Snapshot”, not time period. Asking price, not selling price. Asking price, not selling price.

16. Spatial Autocorrelation Random variable tends to exhibit similar values in a given cluster of space. Random variable tends to exhibit similar values in a given cluster of space. If present, not accounting for spatial autocorrelation will mean that statistical inference cannot be properly carried out. If present, not accounting for spatial autocorrelation will mean that statistical inference cannot be properly carried out. Accounting for spatial autocorrelation can mimic the “comparable-sales” approach used in residential real estate appraisals. Accounting for spatial autocorrelation can mimic the “comparable-sales” approach used in residential real estate appraisals.

17. Hedonic Model General form: y = f(Sß,Nγ) + ε General form: y = f(Sß,Nγ) + ε Attributes can include structural, S, and neighbourhood attributes, N. Attributes can include structural, S, and neighbourhood attributes, N. Two basic issues: functional form and model specification (e.g., spatial autocorrelation). Two basic issues: functional form and model specification (e.g., spatial autocorrelation). Functional form: Box-Cox procedures. Functional form: Box-Cox procedures. Testing for spatial autocorrelation requires construction of spatial weights matrix. Testing for spatial autocorrelation requires construction of spatial weights matrix.

18. Linear Models Accounting for Spatial Autocorrelation y = ρWy + Xß + ε (spatial lag model) y = ρWy + Xß + ε (spatial lag model) y = Xß + ε(spatial error model) y = Xß + ε(spatial error model) ε = λWε + υ, υ ~ N (0, Ω) W: spatial weights matrix

19. Empirical Results (MLS) Preliminary Box-Cox test indicated log- linear form would be appropriate. Preliminary Box-Cox test indicated log- linear form would be appropriate. Heteroskedasticity was present Heteroskedasticity was present Marginal impact of a second parkade-style space: $4,237 (2005 dollars). Marginal impact of a second parkade-style space: $4,237 (2005 dollars). Marginal impact considerably smaller than surveyed development costs. Marginal impact considerably smaller than surveyed development costs. Much of the costs may be absorbed by developers or land owners. Much of the costs may be absorbed by developers or land owners.

20. Empirical Results (ComFree) Box-Cox test confirmed log-linear form still appropriate. Box-Cox test confirmed log-linear form still appropriate. No heteroskedasticity was found. No heteroskedasticity was found. No spatial autocorrelation was found. No spatial autocorrelation was found. The number of parkade-style spaces was found to be insignificant. The number of parkade-style spaces was found to be insignificant. Suggests that parkade-style spaces may not play a significant role as a real price determinant (the actual marginal willingness to pay for such a parking space may be well below its cost) Suggests that parkade-style spaces may not play a significant role as a real price determinant (the actual marginal willingness to pay for such a parking space may be well below its cost)

21. Policy Implications At first glance, consumers appear to get bargain on parkade-style spaces. At first glance, consumers appear to get bargain on parkade-style spaces. But closer look shows that housing affordability may still adversely affected. But closer look shows that housing affordability may still adversely affected. Fewer units being developed per unit land area (parking requirements sensitive to bedrooms, not size). Fewer units being developed per unit land area (parking requirements sensitive to bedrooms, not size). Suppressed housing supply will generate upward pressure on prices. Suppressed housing supply will generate upward pressure on prices.

22. The Effects of Minimum Parking Requirements on the Price of Housing and the Associated Welfare-Distributional Effects

23. Parking Standards and Developers Supplying parking perceived to increase marketability of dwelling units. Supplying parking perceived to increase marketability of dwelling units. Not meeting parking requirements deemed as financial risk. Not meeting parking requirements deemed as financial risk. So, if developers have strong incentive to provide parking, why need parking requirements? So, if developers have strong incentive to provide parking, why need parking requirements?

24. Parking Requirements: A Blunt Tool? Used to assuage public concerns about traffic and parking spillover. Used to assuage public concerns about traffic and parking spillover. Strong evidence indicating that parking requirements are highly inefficient. Strong evidence indicating that parking requirements are highly inefficient. Parking pricing accounting for externalities: Triple dividend Parking pricing accounting for externalities: Triple dividend 1.Distortionary taxes reduced, 2.Travel time savings, 3.Wasteful cruising for parking reduced.

25. Summary/Conclusion Current parking requirements in Edmonton are likely too generous, leading to excessive parking development. Current parking requirements in Edmonton are likely too generous, leading to excessive parking development. Parking spaces can be very costly. Parking spaces can be very costly. Sizeable mismatch between implicit price and costs of parking suggests misallocation of resources. Sizeable mismatch between implicit price and costs of parking suggests misallocation of resources. Evidence that much of the costs are being absorbed by developers/land owners, leading to suppressed housing supply and higher prices. Evidence that much of the costs are being absorbed by developers/land owners, leading to suppressed housing supply and higher prices. Developers have financial incentive to provide parking, questioning the need for parking requirements. Developers have financial incentive to provide parking, questioning the need for parking requirements. Study argues against the use of minimum parking requirements. Study argues against the use of minimum parking requirements.

26. QUESTIONS?