How is Parking like a Sandwich?

In parking, as with ham-on-rye, there is no free lunch.
This post is 18 in the series: Parking? Lots!

Sightline is releasing a new report todayWho Pays for Parking?documenting the hidden parking subsidies that raise the cost of housing in greater Seattle. In a nutshell, the study finds that “cheap” parking really means expensive rents—which makes parking reform a high priority for housing affordability.  Read on for details…

Imagine, just for a moment, that you live in an apartment building that offers a special lunch deal. Every morning the landlords put out a tray of 100 sandwiches for their tenants. They’re darn good sandwiches—each one costs $10 to make. Yet the landlords offer a discount, so that hungry tenants can buy a sandwich for just $3. If you don’t want a sandwich, you don’t pay anything. But if you do want a sandwich, you get a bargain!

Neat, right?

Well, not if you remember one of the key rules of economics: there is no free lunch. There isn’t even a below-cost lunch. The building owners are going to have to pay for the sandwiches somehow. And since their only source of income (besides the sandwich fees) is rent, that means that they’ll do their best to make up the money they lose on sandwiches by charging higher rent.

Now, imagine that the situation is even wackier: the building makes 100 sandwiches every day, but has only 80 tenants—20 of whom don’t even like sandwiches! That means that 40 sandwiches go to waste every day, and at least 20 tenants never eat a single sandwich.

The economics of this crazy system quickly spiral out of control. The landlords lose $7 per day on each of the 60 sandwiches they sell. And they also lose $10 on each of the 40 sandwiches that go to waste. That adds up to $820 in losses on sandwiches each day. Spreading those losses across 80 tenants, the building will need to recoup $300 per month from each tenant just to break even on its below-cost sandwich giveaway.

Now, let’s imagine that one tenant—perhaps one who doesn’t eat sandwiches—figures out that she’s paying $300 a month for food that she doesn’t eat. But when she looks around at other apartments, she discovers that there simply isn’t any way to opt out of the sandwich subsidies. Every apartment building in the area offers below-cost sandwiches to their tenants.

In fact, she finds, most local governments require building owners to prepare expensive sandwiches for their tenants. Some local rules only call for two sandwiches for every three tenants, others require one sandwich per tenant, and some actually require two sandwiches for every tenant. Moving to a different building could mean paying a little more than $10 a day for unwanted sandwiches, or maybe a little less. But no matter where you live, you’ll still pay for sandwiches you don’t eat.

A world full of subsidized sandwiches may sound completely unrealistic. But go through the example above, and substitute the word “parking” every time you see the word “sandwich.” Suddenly, the situation goes from completely crazy to completely typical.

As researcher Jesse London and I found in our brand new report, Who Pays for Parking?the Seattle-area residential housing market treats parking almost exactly the same way that the bizzarro-world I describe above treats sandwiches. Building owners pay handsome sums to build, maintain, and operate parking facilities. Yet the parking fees they charge their tenants amount to only a fraction of the full costs of parking. Meanwhile, government rules (along with many other factors) spur developers to build far more parking than their tenants use. Ultimately, the costs of this parking insanity fall hardest on renters—particularly those who don’t own cars.

Here’s what our analysis found:

  • Apartment buildings subsidize parking. Although most of the apartment developments in our sample charge their tenants to park, the comprehensive costs of building, maintaining, and managing parking facilities exceeds the fees that buildings charge their tenants. (Think of the $10 sandwich for which tenants pay just $3.)
  • Apartments typically offer far more parking than their tenants use. For every 100 spots in our sample, about 37 percent remain empty at night, when demand peaks. (Think of all those uneaten sandwiches going to waste.)
  • Many tenants don’t park on-site. Across our sample, the number of occupied apartments exceeded the peak number of parked cars by 20 percent—suggesting that in about 20 percent of apartment units, nobody parks a car on-site. (Think of all those tenants who either don’t eat sandwiches, or buy their sandwiches elsewhere.)
  • Buildings lose money on parking. We found that losses on parking add up to about $246 per apartment per month—or losses that building owners cover through higher rents. (Think of all the money that buildings lose on their sandwich giveaways, burying the costs in rent.)
  • Car-free tenants don’t have many other choices. If you’re in the market for a new apartment in greater Seattle, it’s almost impossible to find a building that doesn’t lose money on parking. In many places, zoning codes require developers to provide more parking than their tenants need or want. (Think of those wacky sandwich regulations.)

Although a world of subsidized sandwiches seems silly, a world of subsidized parking is all too real. The over-abundance of parking distorts the housing market, raising the cost of housing—particularly for folks who don’t own cars, or who live in bare-bones apartments where the cost of parking is a significant share of the overall cost of the development.

So from now on, when you hear that housing is unaffordable, you should always ask yourself: is it really housing that’s the problem? Or can much of the “affordability” problem be pinned on the high cost of providing a place for our cars to sleep at night?

We are a community-supported resource and we can’t do this work without you!

Read more in

Comments

  1. Chris says:

    Can apartment building owners rent parking spaces to non-tenants? I can imagine a building owner close to a daytime commuter destination charging lower rent for apartments and renting spare (city-required) parking spaces to commuters at market or below-market pricing. Everybody wins.

    I know the real solution is to ease up on minimum parking requirements, but maybe loopholes can be found that will show the true cost/value of the property.

    • Clark Williams-Derry says:

      Yes, in many cases, building owners can rent to non-tenants. I actually think that point is key!!

      Ultimately, if municipal code allows developers to build units with no parking, and parkers can choose to live in a no-parking building but rent parking nearby, the markets for housing and parking will de-couple! As parking vacancies fill up, the price for parking will probably rise. But at the same time, as more car-free housing hits the market, the cost of building new housing will fall.

      Ultimately, you wind up with 2 decoupled markets — one for housing, one for parking — and no cross-subsidies.

      That’s the theory, anyway. But it’ll take a bunch of time, and a bunch of new apartment developments with little or no parking, for that to happen!

      • @desmondbliek says:

        Actually, in a lot of cases, renting out parking spaces to non-tenants is forbidden, whether by zoning (parking is an accessory use to the dwelling unit, not a principal use catering to off-site buyers), or by condo board regulations (aimed at limiting non-resident/guest access to the building). Enforcement of this market tends to be low-key, but all it takes is one complaint…

      • Clark Williams-Derry says:

        Very helpful clarification, @desmondbliek !

        In buildings with both residential and commercial uses, you will see parking spaces used for non tenants. But that’s far from universal!!

  2. David Hiller says:

    Well put, folks.

  3. MH says:

    This study doesn’t appear to factor property vacancy.

    • Clark Williams-Derry says:

      Fair enough — we didn’t write much about vacancy. But we were actually pretty careful about vacancy issues when crunching the numbers. Most of the buildings were rented to near full capacity; a few weren’t. We considered normalizing all of our numbers to a standard occupancy rate of 95%, but it really didn’t change the conclusions much, if at all. Many of the buildings were actually occupied above 95%, so going to a “standard” occupancy rate of 95% would have actually increased the calculated losses on parking.

      Anyway, vacancy rates are very important, but when we looked into different ways of dealing with vacancies our conclusions didn’t change much.

      • Clark Williams-Derry says:

        Oh, and I should mention that we actually excluded a few buildings that had been completed so recently that they were rented out at 60% or below. We figured that the numbers were preliminary, and would skew the final results. (That is, those buildings “lost” a lot of money on parking, but they were losing a lot of money period — and would, until they rented up.)

      • Jesse London says:

        The actual occupancy of these apartments were very close to 95% at each building, so I would certainly agree that using actual occupancy and applying a 95% occupancy to each building yielded very similar results.

      • MH says:

        Thanks for the clarification. Just wanted to ensure there wasn’t a large “lease-up” going on at selected properties.

  4. William Krick says:

    Whenever I read an article like this, I’m immediately skeptical and I try to determine the “agenda” of the people publishing it. They’re taking a position about something, but WHY are they taking that position and who benefits.

    Often, studies like this are done under the guise of defending helpless consumers, when they’re actually designed to change the laws to benefit corporate interests, which are frequently at odds with the interests of consumers.

    Who funded this study, and what’s the end game? Changing laws to benefit developers? Changing laws to benefit tenants? Something else?

    • Clark Williams-Derry says:

      Fair questions. We actually didn’t receive any dedicated money for this research. It was funded through Sightline’s general operations budget, which comes from a mix of individual donors and foundations. In case you want to learn more about our funding, go here:
      http://www.sightline.org/about/annual-reports/

      As for the reasons we did the study: first, it seemed interesting, and there was a rich source of data to tap; second, the literature I’ve reviewed suggests, quite strongly, that parking is an underappreciated driver of housing costs. A quick review of the data and the literature suggested that there was a significant oversupply of parking in rental housing — which suggests an opportunity for reducing housing costs simply by reducing that oversupply. An economist would probably say that the resulting “gains” from reducing parking oversupply in new housing would be split between renters and property owners/developers. I’m not sure how that split would play out in practice — but I suspect that reducing parking requirements would ultimately result in significant increases in housing construction, which would help, at least in some small way, to ease affordability problems.

      Anyway, the real answer to your question about my agenda: I’m curious about housing policy, I’m genuinely concerned about housing affordability and transportation costs for low- to mid-income folks, and we found a nifty data source. That’s basically all there is to it!

      • Alan Locklear says:

        Mr. Krick might be wondering if your “agenda” has something to do with the current flap about allowing developers to build apartment buildings with no parking at all in Portland. The City has made some adjustment to the rules in question, but still allows substantial new apartment buildings with no parking. Since many of these buildings are in-fill in neighborhoods with mostly single-family homes, many neighbors are upset about what they regard as “their” on-street parking being taken up by apartment-dwellers’ autos. Since many older homes in Portland were built without off-street parking (or with room for only one vehicle), many people must park on the street or seek out rental parking which is mostly nonexistent in residential areas.

  5. ArtR says:

    So is it possible to include land costs in this. Demand will not pay more than it is willing to and supply has costs to build, what is left is the land price. Anything the developer has to do, that doesn’t generate sufficient return the developer will take out of the land price. What has changed is rapid generational shift toward car ownership, but demand has already established what it is willing to pay whether it needs parking or not, but land prices don’t decrease quickly; they are “sticky”. But they do go up quickly, so anything that reduces supply costs will be captured in higher land prices but not necessarily cheaper housing. The problem I have with no parking requirements is very few jobs in a region are accessible via public transit.

    • Clark Williams-Derry says:

      That’s an excellent point about land prices. The tool we use to estimate parking costs does factor in land prices…but those were mostly 0, because the parking at most of these developments was below grade.

      But the more important point that you raise is whether renters (or developers for that matter) would ever see any benefit from buildings with no parking — or would the reduced cost of parking just be reflected in higher land prices. This is one reason we’ve long been supportive of a land value tax in urban areas — not a “single tax,” as pure Georgists advocate, but definitely something to ensure that the benefits of high land values don’t just accrue to a few lucky landowners.

      Ultimately it’s hard to know how things pan out for housing costs overall in the tension between lower housing construction costs and potentially higher land costs.

      As for your point about no parking requirements and public transit — it’s clear from our sample that a significant share of renters don’t park on-site (many of whom don’t own cars), that an even larger share of parking spaces remain unoccupied, and that parkers never pay the full cost of parking in their parking fees, and that non-parkers pay for their neighbors parking. For the ~20% of apartment dwellers who don’t park on site, either because they park elsewhere or they don’t own cars, I’m sure they’d love to have an option that didn’t require them to pay for other people’s parking spaces.

  6. Allan Kaplan says:

    It appears to me that this study was done from a developer’s perspective, with no consideration to parking availability outside the building itself. If none of the new developments in, say, Ballard (where buildings are getting razed every day for new housing) provided parking, then all the residents’ cars are on the street, where there is already certainly nothing resembling a parking glut at all. This is already true for a lot of Seattle (do you really live here, or do you not get out, or are you one of the vast minority for whom public transport actually works?), and growing worse all the time. Some neighborhoods are virtually impossible to park in now, and throw in a few more housing complexes without their own parking, and no one, including the residents are going to be happy. Oh, except the developers.

  7. saundra raynor says:

    Builders of new apartments need to build underground parking, enough for at least some of the tenants (maybe a third) who might want to pay extra for that convenience – those with vehicles who have sufficient income to pay extra.

Leave a Comment

Please keep it civil and constructive. Our editors reserve the right to monitor inappropriate comments and personal attacks.

*

You may add a link with HTML: <a href="URL">text to display</a>