Parking Requirements Harm the Value of Land

Americans learn about free parking early, when they play Monopoly," says Donald Shoup, a distinguished research professor with the Urban Planning Department at UCLA, in an article for the Journal of Planning Education and Research entitled "In Lieu of Required Parking." This was a bold notion when it came out in the 1990s. He would spend his entire career examining how cities are put together, and who benefits. He wrote a 700- page book, "The High Cost of Free Parking," in 2005, which proposed a different look at how parking space affects valuation for property taxes, as well as many other financial and livability issues for urban planners and government agencies.

Photo by Paul Sableman

Professor Shoup advocates three suggested reforms for how to deal with parking space: 1) Remove off-street parking requirements; 2) Charge a fair-market price for on-street parking; and 3) Use the revenue for tangible neighborhood benefits. This, too, was bold thinking at the time.

Twelve years after publication, Professor Shoup was being interviewed by Marcos Paulo Schlickmann, a transportation specialist, for Market Urbanism. The article was simply titled, "Interview with Parking Guru Donald Shoup." Regarding his book, Shoup says, "I argued that minimum parking requirements subsidize cars, increase traffic congestion, pollute the air, encourage sprawl, increase housing costs, degrade urban design, prevent walkability, damage the economy, and penalize poor people. Since then, to my knowledge, no member of the planning profession has argued that parking requirements do not cause these harmful effects. Instead, a flood of recent research has shown they do cause these harmful effects. Parking requirements in zoning ordinances are poisoning our cities with too much parking. Minimum parking requirements are a fertility drug for cars." Again, these notions were not mainstream. But that's changing.

Fast forward to 2019 and Professor Shoup explains what he thinks of the changes that have occurred since he first called for the elimination of parking requirements. "Back in those days, half the planning profession thought I was crazy and the other half thought I was daydreaming. But it's good to see that things are turning around. Cities are now going from minimum parking requirements to maximum parking limits, just a 180-degree turn."

Photo by Alyson West

As an example, he cites the revival of Los Angeles' historic downtown district, which was considered the Wall Street of the West because of its many architectural gems that had gone vacant when the business district moved to more modern buildings in Bunker Hill, a mile away. It was because of an innovative city law established in 1999, called the Adaptive Reuse Ordinance, which removed parking requirements for housing and allowed the empty office buildings to be converted to housing.

"In the next eight years, 57 vacant, historic office buildings were converted to housing. Just think of all the employment from that, and all the housing, with 7,000 new apartments. And the property taxes shot up, because suddenly instead of having empty buildings they were selling condominiums. So, I think you normally can't see what parking requirements prevent. You can't see what doesn't happen. But in the revival of downtown Los Angeles, it was the removal of parking requirements that allowed these things to happen."

Other cities and downtown districts are following suit. "San Francisco has no minimum parking requirements. Minneapolis; Buffalo; Hartford, Conn., also," Shoup says. "So, it's happening around the country."

Photo by Dan Burden

What is driving this change? Shoup says, "It's nice to see it happening, and I think it's partly because journalists, who can clarify the issue, are bringing this forward. I think that's how change happens. It's through journalists translating research into action."

Aside from the elimination of parking requirements, Professor Shoup states that, "The second big thing that's happening, which is increasing property values, is allowing homeowners to convert their residential garages to apartments. Here in California, and I think we're the pioneers with this, a state law requires all cities to allow Minimum parking requirements subsidize cars, increase traffic congestion, pollute the air and encourage sprawl. Photo by Alyson West Photo by Dan Burden 12 ON COMMON GROUND garage conversions to apartments. It not only provides housing and creates investment in properties, it also increases property taxes. That's a big thing that's affecting real estate."

Photo courtesy of Zipcar

There are an estimated 500 million parking spaces in the United States covering roughly 25,000 square miles of land that, largely, goes unused for most of the day; minimum parking requirements for development makes building affordable housing more difficult; and there is changing attitude toward car ownership between baby boomers and millennials. Boomers grew up in a musclecar culture of Mustangs, Firebirds, Chargers and GTOs. Today, the more common option is Uber, Lyft or maybe a Zipcar. Soon, these all may be autonomous.

Photo by Ted Eytan

Many of these issues remain as primary concerns for present urban and suburban planning that takes into account land value economics, as well as property and retail tax policies and revenue distribution. The report "Driving Urban Environments: Smart Growth Parking Best Practices" was prepared for the Maryland Governor's Office of Smart Growth.

"We expect safe, plentiful, easily accessed parking at work, at home and at the store. Parking has become part of our culture: an office perk, a selling point for retailers, a display case for a household's cars and a requirement for financing development projects," the report states. "Parking requirements now drive many site designs, and are often the make or break issue for financing new developments. Too many quality smart growth projects remain on the drawing board because they simply cannot solve the parking dilemma. We need parking, but we need to re-think parking design, parking financing, and parking supply and demand to better meet the needs of communities, developers and users." The study looked at how different communities across the nation were adjusting to the changing status of parking value. It noted a disparity between urban and non-urban land value mechanics.

"In suburban and rural areas, the relatively low cost of land makes surface parking more cost effective than building a garage. Absent creative financing mechanisms, suburban locations will continue to enjoy a significant competitive advantage over urban locations and vast expanses of parking will continue to dominate the American landscape." These land value and tax analysis investigations are becoming more utilized and in demand as technology advances, creating 3D presentations and easily digested graphics.

The Value of Land

Few know this better than Joe Minicozzi, AICP, principal of Urban3, a land-use and community design consulting firm based in Asheville, N.C. With a Master's degree in Architecture and Urban Design from Harvard University, Minicozzi is an expert in helping communities understand market dynamics created by tax and land-use policies. In 2017, Minicozzi was recognized as one of the 100 Most Influential Urbanists of all time. He actually makes tax policies sound interesting.

"What's the value of your community?" That's a question Minicozzi frequently asks at the beginning of his many presentations to communities across the country. "Are you paying your fair share for all the infrastructure you're using?" he'll ask, when addressing planners and players of suburban and rural development pitched to homebuyers who will work and play in the nearby urban environs. His graphic presentation is active and engaging, utilizing award-winning analytic tools. He sweeps through slides that demonstrate the different tax rates for buildings versus parking space in cities across the country. In Peoria, Ill., he showed officials and developers that parking was being taxed at $1.40 per square foot, while buildings were being charged $34.60 per square foot. This method of valuation penalizes improvement.

"There's a disincentive to add value to the community because the more value I add, the more taxes I pay. That doesn't mean I have more money. I have less. The money is in the building." He explains that Land Value Taxation is a more equitable and efficient method of assessment, placing a higher taxable value on land than on buildings. "The fundamental issue is that inefficient use of land costs more than efficient use of land. Simply put, buy more stuff and it costs more to maintain."

Minicozzi points out how lower suburban property tax rates encourage sprawl, and gives the example of a Walmart in the burbs paying less property taxes than a small neighborhood grocery store in the city. "Suburban bias is baked into the system. But don't hate the player, hate the game. Understand the game, and that it's your community.

Photo by Dan Burden

"City dwellers pay a disproportionate amount of property taxes to the county compared to their brothers and sisters living out in the rural areas, many of whom come into the city regularly to work, or shop or whatever — driving on city streets and using city infrastructure. The county's receiving a big bang for the buck in that, but what is the county doing for all that gravy? Are they investing in the downtown? Are they helping with a parking deck, or a dog park or even a sidewalk? No. So, they're getting all this revenue from the downtown, but they're not doing anything to cultivate its success. You've got to feed the Golden Goose sometimes. You can't just make pâté.

"But that's typical of a lot of what we see with suburban sprawl. It's not that we don't know that sprawl is expensive — we've known that since the ‘60s. It's just that we've gotten into a habit of developing cities as an industry," Minicozzi explains. "In order to level the playing field, I shouldn't be penalized for developing a property with a building that's going to generate greater tax revenue for the community."

Strong Towns is a nonprofit organization that describes itself as, "working to support a model of development that allows America's cities, towns and neighborhoods to become financially strong and resilient." It recently published a piece called, "The Many Costs of Too Much Parking," which bluntly states, "Parking minimums do not belong in a strong city or town. These minimums result in more parking than we actually need. They rob our cities of financial productivity. They hinder those who contribute value to our cities, from small business owners to developers to renters to homeowners. And they result in dead zones of empty, underutilized space."

Photo by Zach Korb

Daniel Herriges, a planner with Strong Towns, explains how parking requirements affect real estate value for developers and municipalities. "Parking is a significant cost of real-estate development, typically in the tens of thousands of dollars per stall. When local regulations require more parking than is actually needed, that cost must either be swallowed by the developer or passed on to customers. For example, one recent study estimated that parking costs renter households an extra $1,700 per year on average. This can render some projects not viable, preventing development that would otherwise have occurred. From a city's perspective, parking lots take up valuable land while contributing effectively nothing to the tax base, and requiring additional infrastructure to serve."

What would be a good way to look at the future? Herriges says, "We support the total elimination of off-street parking requirements. Developers and businesses are more than capable of determining how much parking they actually need, and charging a fair market price for it, which allows them to balance providing parking for their customers against other considerations. In areas where parking scarcity is a concern, cities can also encourage shared parking districts to reduce the over-provision of parking spaces. For example, a space used by a law firm from 9 to 5 could double as parking for a restaurant in the evening."

Parking Overload

Too much land. Not enough buildings. What to do? Chris Keimig is a writer and teacher living in Minneapolis. He's the founder of the blog Empty Lots, a documentary photo project that examines Twin Cities' transit and urban planning issues through the lens of the city's excess parking infrastructure. He likes to study transit planning, in his spare time. In an article he wrote about Minneapolis for streets.mn titled "Tax Land, Not Buildings," he says, "for lots of reasons, the fact that surface parking covers one-third of the entire surface area of downtown is bad for the city. One solution to this problem that the city should seriously consider is taxing land at a higher rate than buildings.

"The conventional property tax ... is essentially backwards when it comes to the behaviors it incentivizes. It penalizes property owners for building or making improvements to their structure, while rewarding speculators and absentee landlords who would rather allow their properties to decay than make expensive (and annually taxable) improvements."

Photo courtesy of Minneapolis Grain Exchange

As a local example, he cites an intersection in downtown Minneapolis — 5th Avenue South and 3rd Street South — that has a surface parking lot, a parking garage, and further down the block, a commercial building called the Minneapolis Grain Exchange. He looked into the property taxes and discovered that: the surface lot pays $1.57 per square foot of land in property taxes, the garage pays $3.70 per square foot, and the building pays "a staggering $65.34 per-square foot of land — a rate almost 42 times higher than the surface parking lot."

"This is completely backwards," he says. "From the city's perspective, the Grain Exchange building is the best and most preferable use of land of the three, while the surface lot is the least. And yet, looking at the tax figures one would think exactly the opposite."

Photo courtesy of Beyond DC

The Mortgage Bankers Association's Research Institute for Housing America (RIHA) recently issued "Quantified Parking: Comprehensive Parking Inventories for Five Major Cities" by Eric Scharnhorst. "The report reveals an investment in parking that is out of balance with the current demand for parking in almost all cases, and even less in tune with what appears to be declining future demand."

Scharnhorst says, "Today's empty parking spaces can be seen as a land bank in some of the most convenient city locations, or, taken another way, a future is arriving where builders will be able to provide more of everything else and fewer parking spaces."

Photo by Dan Burden

Seattle is one of the cities studied for the report and has a population density of 13 people per acre and a parking density of 29 parking stalls per acre. Seattle is located in King County and the county assessor's office explains how land value is determined. "Each year all property in King County is revalued to market value, based on using either, income, sales comparison or cost approaches to value.

In the state of Washington, assessors must value property to market value based on the property's ‘highest and best' use. Four factors must be considered when valuing a property: 1) legally permissible; 2) physically possible; 3) financially feasible; and 4) most profitable. Mike Fratantoni, RIHA Trust Administrator, says. "The foundations of the real estate finance industry are, both literally and figuratively, built on the use of a finite amount of space. This report gives us a window into land-use trends that are sure to intensify in the coming decades."

Photo by Dan Burden

With a seemingly infinite demand by an ever-growing population for finite urban space, attitudes toward land value are under greater scrutiny. "We need more housing and less traffic, but we require all housing to bear the heavy burden of required parking," Professor Shoup says. "That's the wrong way around. I think we should not have parking requirements. There's a lot of vacant land right where we want to build housing. We've got a hidden land bank in all our surface parking."