So another hot topic in the debate around the Auckland Unitary Plan is whether there should be minimum parking restrictions for new developments. I.e. when a new dwelling is built, developers will be required to build a certain number of car parks depending on the size of the dwelling. I’m not that familiar with the actual detail (it’s covered well by Auckland Transport Blog here), but the main gripe people seem to have is that most new dwellings with two or more bed rooms in suburban Auckland will be required to have two car parks. Generation Zero have been doing some great advocacy around the Unitary Plan and have produced this graphic, complete with a trendy twitter hash tag #binthemins
On its face, as an economist I am suspicious of any arbitrary restriction. Therefore my first question is “what is the market failure this is seeking to correct?”. Or in more simple terms, “why do we think the market will under-provide car parking?”. I don’t personally have an answer to this, but I haven’t thought hard about it, so I pose that as question to our readers (UPDATE: Eric Crampton rises to the challenge here). In this context, I found this tweet by Pippa Coom about Cameron Brewer’s support of the restriction quite amusing.
— Pippa Coom (@pippacoom) August 28, 2013
Now the Gen Zer0 guys don’t tackle the market failure question, which is fair enough, talking about a lack of market failure isn’t very sexy politically (even though an infographic about market failure or lack thereof would excite the authors of this blog!). As you’ll see from this inforgraphic they are mainly focusing on the unintended (or intended depending on how cynical you are) consequences of the policy.
Now I’m not an expert on Urban planning or any of the literature in this area, so I thought I would put my economist hat and on have a brief think about the problems they claim the policy will cause. From an economics perspective it sounds like this policy causes an over supply in parking or at least a distorted distribution of parking relative to what would occur in the absence of the ban (unless someone can tell me what the market failure this is fixing is!)
(1) Ridiculous cost
Building car parks add to the cost of building a house. As an economist the cost of something doesn’t worry me so long as people are willing to pay for it. But what happens when you force car parks to be built? You probably push up the total cost of building the house or developers cut back another part of house to try and hit a price point. I.e. you either have more expensive houses, or slightly worse houses that have nice parking.
I’ve seen people say that you are “forcing people to pay for something they don’t want”. This line of argument is correct and false at the same time. What is actually happening here is what economists call “pure bundling”. I.e. you can only purchase the two products together, not separately. (more on the economics of bundling here)
So it’s correct in that people who place zero value on having a car park may end up purchasing a bundle that includes a house and a car park. But it’s false because their valuation of the housing component of the bundle is just greater than the price of the bundle. So nobody is being held at gun point and forced to buy a car park.
But the knock effect of the bundeling is that because costs have increased, people who don’t value a carpark are likely to be squeezed out of the suburbs they would prefer to live in or they will have a crappier home. This sounds like a welfare loss to me?
(2) Poor use of Urban Space
This is the one that is hard for an economist not familiar with the urban design lit to talk about. They are basically saying that mandatory car parks will result in ugly buildings (e.g. this post, yet again at ATB) and urban spaces that aren’t fun to be in. In economics language, they are basically saying that there is an externality associated with good urban design and that we will get worse urban design. Whether this is true or not is a factual issue that I’ll leave to people who research this.
But based on my anecdotal experience when I have traveled, I think I agree with the argument that there are externalities associated with god/bad urban design. Areas designed for people rather than cars are generally more pleasant to spend time in.
However, we do need to be careful with arguments like this, as what I consider “good design” and “pleasant” may differ markedly to other people’s preferences. So the more work that can be done to make this kind of assessment objective and focus on commonalities in preferences, the better. As Matt noted here, we need to be careful that we don’t use externalities as a veil to impose our value judgements on other people.
On a more technical note, this means we need to make sure the externalities being discussed here aren’t “pecuniary”, what does that mean? Eric Crampton has covered that well here in his “Primer on Externalities”
(3) Reduces transport choice
I would rephrase this to “distorts transport choices”. On its face building too many car parks doesn’t reduce people’s choices, it’s just now much easier to drive.
If you already own a car park, then the cost of that car park is sunk when you are deciding to drive or use public transport. So you rationally ignore that cost of your car park when you pull together your spreadsheet comparing the costs of driving or catching the bus (I’m assuming you are all like me and have spreadsheets for this kind of thing!).
So because the cost of parking is sunk, your decision is distorted towards driving. If it’s easy to rent out your car park the cost is of course not sunk, but it has a very low opportunity cost if every one else has a car park and therefore doesn’t need to rent yours!
Note also that is basically just the bundeling issue discussed above….to get a house you have to also purchase a carpark.