Parking Externalities in Commercial Real Estate

Abstract

∗∗∗ Local governments have employed a variety of strategies to reduce street congestion through an increase in parking supply. These policies have been criticized as an implicit subsidy that shifts costs from drivers to the public at large. Others have noted that parking lots and structures can lead to increased water and air pollution. However, there has not been an examination of whether parking, presumably by reducing congestion, generates external benefits. We measure whether nearby parking availability influences commercial property prices after controlling for property characteristics, including on-site parking. We find that publicly accessible parking, such as commercial parking garages, generates significant aggregate externalities. We also find evidence of a significant complementary relationship between building and parking area in property values. This suggests that parking regulation could have a significant impact on property development through its effect on the value of the marginal square foot of building area. Local governments often intervene in the parking market in order to decrease externalities from a perceived private under- or oversupply of parking. Until recently, the primary aim of parking policy has been to decrease parking search and attendant congestion costs by increasing the supply of off-street parking (Shoup 2005). The justification for these interventions is that there are externalities from parking provision that accrue to local businesses. However, there is little evidence on the existence or magnitude of these externalities. To the extent that they exist, they should be partially capitalized into property values. This article tests whether parking generates externalities for nearby properties and examines the role of parking in determining a property’s value. Parking requirements in zoning regulations and parking garage development subsidies are two important tools that local governments use as tools intended to reduce parking congestion (Jakle and Sculle 2004). Minimum parking