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The High Price of Free Parking

An app that allows people to sell street-side parking spots is a market solution to bad planning.
san fran parking

Arbitrage is a simple, common and accepted investment strategy. Those in position to arbitrage take advantage of a difference in price between two markets, buying low in one and selling high in another. Particularly when the holding time is very short, profits are essentially risk free.

Americans are seemingly comfortable with arbitrage happening on Wall Street. Why shouldn’t they be? The job of a market is price discovery and so arbitrage is a necessary and important balancing mechanism. Yet one simple form of arbitrage—one available to the ordinary guy with a car and a smart phone—has infuriated public officials, as well as some drivers and fairness advocates.

Monkey Parking (twitter) is an app that allows someone to alert drivers when they are preparing to leave a parking spot. A driver looking to park bids on the spot and the individual vacating, once they accept the bid, waits for them to show up. Monkey Parking handles the transaction (for a fee), the seller leaves the spot and the driver who is paying for it pulls in.

This arbitrage opportunity is only available in a few places around the world, cities like San Francisco, where the two necessary components exist. For it to work, there needs to be a consistently high market price for parking due to strong demand and limited supply. In addition, the government needs to suppress the actual price significantly below the market price. When both of these happen, Monkey Parking can assist individuals with profiting by arbitraging the difference in prices.

San Francisco officials are not sold on the merits of arbitrage as a way to correct market imbalances, as least not when it comes to parking. The city issued a cease and desist to Monkey Parking and has threatened any who use it with enormous fines. Here is what City Attorney Dennis Herrera said in a press release:

‘Technology has given rise to many laudable innovations in how we live and work — and Monkey Parking is not one of them,’ Herrera said. ‘It’s illegal, it puts drivers on the hook for $300 fines, and it creates a predatory private market for public parking spaces that San Franciscans will not tolerate….People are free to rent out their own private driveways and garage spaces should they choose to do so. But we will not abide businesses that hold hostage on-street public parking spots for their own private profit.’

The political statement astutely taps into the public outrage that Monkey Parking has generated. The parking spaces are “public” and the market for them therefore is seen as “predatory” in nature. It is like someone is sitting on a park bench and refuses to move unless you pay him for the space.

Except that it’s not. Sitting on a park bench to keep others from using it comes at a cost: the individual’s time. When parking is free, leaving a car in an open spot indefinitely has no cost. Real estate in San Francisco is incredibly expensive, yet the local government there has chosen to suppress the price—to give valuable real estate away for free—for parking.

Most American cities will never struggle with this problem. A combination of regulations that require businesses to overbuild parking, property tax systems that reward unproductive uses of land like parking lots and public parking garages built in the name of economic development reinforce a cultural expectation of abundant, free parking. There are an estimated three parking spots for each vehicle in America. The laws of supply and demand dictate that when supply vastly exceeds demand, the price trends to zero. And while most of this parking is served with expensive public utilities that go unused (automobile storage does not require fresh water or sewage treatment, after all), the resulting tax base and revenue stream is insufficient to pay for the long term maintenance costs. Subsidized parking is an unfolding economic disaster for most local governments.

When it comes to parking then, San Francisco is actually in a far better position than most American cities. Their problem is easily manageable. To thwart Monkey Parking and destroy the so-called illegal market for parking, they need only do one thing: raise the price of parking.

If parking were more expensive, there would be a balance between supply and demand and the users of Monkey Parking would have nothing to arbitrage. The city/taxpayer would capture the revenue and there would be ample amount of parking available at the current market price. The people who like their parking at below-market prices wouldn’t like it, but then again, wouldn’t we all prefer to pay less than cost for the products and services we use.

If our cities are going to insist that parking is a public good—a debatable assertion—they should at least be using market signals to determine the quantity and price. Free parking isn’t free, and in some places it even has great value.

Charles L. Marohn, Jr. PE AICP (@clmarohn) is a licensed engineer, a professional planner and the president of the non-profit Strong Towns. His latest book, A World Class Transportation System, is now available on Kindle.

This post was supported by a grant from the Richard H. Driehaus Foundation.