One dumb regulation is driving up the cost of your house and your flat white

Gareth MorganEnvironmentLeave a Comment

We’ve been pretty critical of the Productivity Commission in the past for endorsing more sprawl as a response to the housing crisis, but their Using Land for Housing draft report released a couple of weeks ago gets some things dead right.

In the Commission’s crosshairs are a few dumb planning regulations for which they’ve concluded “the cost exceeds the likely benefits”: minimum parking requirements, mandatory balconies and minimum floor sizes for apartments, and height and density restrictions.

In this blog we’ll focus on minimum parking requirements (MPRs). Unless you’re a planner or a developer you’ve probably never heard of them, but these harmless sounding rules are driving up the cost of housing and development, spreading our cities out and clogging them up with more traffic congestion. Getting rid of these would be a major win economically, socially and environmentally.

What are minimum parking requirements and why do we have them?

MPRs are rules in District Plans that force developers to build a minimum number of off-street car parks with any new development. Typically this will be one or two parks per dwelling, or one park per 30 or so square metres of floor area for commercial properties.

To put that in perspective, an NZTA research report says each car park requires about 30 square metres (including space for access and manoeuvring), so this means parking taking up as much space as the development itself. We’re all familiar with US-style big-box retail stores with their massive parking lots, but most people are probably unaware that local councils actually require developers to provide all that parking.

So why do we have these rules, rather than just letting the developers decide for themselves?

For an economist, the starting point for assessing any regulation like this is: what market failure(s) is it trying to address? The usual justification here is to prevent parking spillover (people parking where they’re not meant to) and traffic congestion caused by people cruising the streets for on-street parking. MPRs ‘solve’ this problem by ensuring there is always heaps of parking space.

For starters, the degree of ‘market failure’ is questionable. Anyone building or buying a house or commercial property already has every incentive to ensure there is an adequate amount of parking, otherwise the value of their business or home will be reduced. Secondly the real issue here isn’t a supply shortage, it’s that parking (or congestion) isn’t being priced efficiently. ‘Free’ on-street parking is still commonplace throughout New Zealand. We should all know there’s no such thing as a free lunch. What this really means is that the costs of storing a car are paid for by everyone else.

What MPRs really do is let local councils off the hook for their responsibility to monitor and manage public parking properly, and charge fair market prices. They also let councils and government off the hook for proper traffic management through policies such as congestion charging and provision of public transport.

OK it’s dumb, but what’s this got to do with the price of housing?

By wasting valuable land and pushing up construction costs, MPRs make housing and basically everything more expensive. Now of course, there’s nothing wrong with building car parks so long as people are happy to pay for them. The problem is when they aren’t given any choice.

To what extent are MPRs actually causing an oversupply of parking? Estimating this can be difficult and will differ case by case. As an example, removal of MPRs in London resulted in a 40% decrease in the number of car parks provided with new developments. Clearly the regulation was forcing people to build significantly more parks than they wanted to.

The direct cost of providing a surface car park has been estimated at $2,000-5,000, but the bigger factor is the opportunity cost of the value of the land – in other words what the land could be used for if it wasn’t a car park. For bigger developments where land values are high, a developer might choose to build underground parking at an estimated cost of $20,000-$30,000 per car park. Developers have reported that the net cost per car park in the Auckland CBD is around $32,000.

The impact is largest on denser developments. The Productivity Commission cites a Los Angeles study that parking requirements added 25% to the cost of an apartment building. Another study of a hypothetical apartment block found that requiring 0.75 underground car parks per unit would require rents to be 63% higher than if no parking was provided.

The impact also falls disproportionately on poorer people. As transport planning expert Todd Litman puts it, “Since parking costs increase as a percentage of rent for lower priced housing, and low income households tend to own fewer vehicles, minimum parking requirements are regressive and unfair.”

With house and property prices going through the roof in Auckland, ditching MPRs ought to be a no-brainer for politicians of all stripes.

My coffee too, are you serious?

MPRs don’t only affect housing. As one study puts it, MPRs for commercial buildings are “effectively a tax on floor space, where an increase in floor space triggers increased parking provision”.

As taxes tend to do, that flows through into the cost of everything else. When you buy your groceries at the supermarket, you’re paying for that massive parking lot outside – even if you walked, biked or bussed to get there and home (now known as ‘quaxing’). And yes, when you’re coughing up for that flat white, you can bet that a little bit of that bill is paying for your cafe’s off-street parking which they have to provide regardless of whether they want to. We have heard anecdotal stories of the dreams of prospective Auckland cafe owners being dashed by… you guessed… a lack of car parks.

Not only are MPRs bad for consumers, they are a barrier for new business developments.

What’s next, MPRs cause global warming???

Well… yes, actually.

MPRs tilt the playing field heavily towards driving as a preferred mode of transport. As the Productivity Commission says, “In effect, parking minimums act as a subsidy to car owners by over-supplying parking and are likely therefore to encourage excess use and congestion.”

Add to that the effect MPRs have on sprawl. Car parking takes up a large percentage of space in urban areas – perhaps as much as one-quarter in New Zealand city centres. Excess parking consumes scarce land and forces developments to spread to the urban fringe. The New Climate Economy report showed that sprawling cities have far higher emissions, and as we have pointed out in previous blogs, sprawl doesn’t save money – lower house prices are offset by higher transport costs.

Lower density, longer travel distances and a free park at both ends of the trip? No wonder we have that tired old cliché, “Kiwis love their cars”. Perhaps if car owners had to pay for the true cost of all that ‘free’ parking, things might be a bit different.

Considering all the negative impacts on congestion, health problems related to physical inactivity, car accidents, and environmental pollution, it doesn’t get much dumber than subsidising car ownership. It’s especially dumb when these rules apply to developments in the inner city or near main bus and train routes, undermining the whole purpose of inner city living and providing public transport.

Time to ‘bin the mins’

It’s clear there’s no credible argument for keeping minimum parking requirements. One study of medium density areas in Auckland conservatively estimated that the overall costs are 6-12 times as large as the benefits.

Ideally, central government would do away with MPRs through a national policy statement under the RMA. If they’re not going to, local councils should take things into their own hands and remove MPRs from their district plans. Auckland and Wellington have already removed them in their city centres, and as the Productivity Commission notes, they are more vibrant and successful places as a result.

After all, the main reason people live in denser areas is so that they can walk to the cafe, park, supermarket or their work. This kind of regulation actually makes this kind of lifestyle impossible. No-one should be forced to get into a car if they don’t want to.

 

One dumb regulation is driving up the cost of your house and your flat white was last modified: December 15th, 2015 by Gareth Morgan
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Gareth Morgan