The Economics of Parking Space Allocation

Jerry Schleicher

[October 2002]

Cars, trucks and buses in this great city had almost come to a complete halt. The traffic did not have the room to either move or stand still. The crisis was so severe that it was no longer possible to postpone decisive action. The city council knew that they had to do something drastic and they did. They devised a master plan to control the flow of vehicular traffic. It was rather a simple plan. They knew that private car ownership had reached epidemic proportions. Families now owned three or four cars. Limiting the number of cars each family could own was too complicated and raised more problems than were solved.

Therefore, individual parking spaces in the streets were numbered. All the streets in the city would be listed with their numbers on a master sheet. All car owners would be noted and it was decided that all owners of cars on each block would be entitled to take part in a public raffle. It was agreed that each car owner should have a chance of winning a parking space reasonably close to where they lived. They divided the neighborhood so that no one would walk more than three blocks to park their car. All the names of car owners were put into a container and then lots were drawn. If there were more car owners than spaces, then there was some element of worry.

Some areas had more spaces than cars. Therefore the city could draw on other areas close by that had. an excess of spaces. Two years would pass before all objections, quarrels, and charges of fraud were settled and peace was secured. But it was done. The unfortunates who did not win faced the prospect of paying for private parking or not owning a car. Many felt that this was best and were not too unhappy when they were forced to make this decision.

Areas considered to be public had only parking meters and were not assigned to anyone. Designated spaces also had meters and were used by others when their owners were not occupying their spaces. A limit of half an hour use was set and then the owner could park there indefinitely.

Each parking space was assigned to was in use, the space belonged to you. If the car was junked the ownership of the space reverted to a general pool and new drawings were held.

It was hoped in this way to give almost all car owners a chance to own a space at some time. It was also decided that ownership of the space could be transferred with the sale of the car. This would cause the turnover of spaces as people purchased new cars and they then would need new spaces. The fact that people would be discouraged from buying new cars knowing that the loss of a space was mandatory was accepted for the good of the city. After much debate, objections and wrangling the plan was finally accepted.

The plan had some very important results. It limited to a tolerable amount the number of cars that the city could absorb. Anyone not owning a parking space or access to private parking, would not own a car. Private car traffic was at an acceptable level because many cars had to be sold and shipped out of the city The streets were now less congested. Most people became accustomed to the pleasure of having the freedom to drive on the streets of the city. Although trucks and taxi cabs offered other problems, they did not seem as severe now that the private car problem had been solved.

Other changes were taking place that were not noticed at first. The price of old cars did not drop as occurred before the master plan was effected. The value of cars declined in a predicted manner. Books were printed quoting wholesale and retail costs of old cars. A car had a life value of ten years or so. After that time, it would be difficult to sell at any price. Now it appeared that old cars were rising in value. Since a loss of parking space accompanied the junking of a car, every effort was made to keep the old car rolling. The auto repair business began to boom. More and more young men trained to become auto rejuvenators, as they were called. Schools opened and were successful in turning out great numbers of graduates. Abandoned buildings now showed new signs advertising auto repairs of all types. The old buggy did not look as old as it once did.

No one could have imagined that people would boast of owning an old car more so than a new car. Because of the ownership of a parking space1 it was happening. More old cars remained on the road than before. The sale of flew cars dropped drastically. Who wanted a new car? Where could it be parked? All the parking spaces were occupied both public and private. Except for a short visit of less than a day, new cars were not welcome. Old cars were now more valuable than new cars. The price of an old car was not determined by the old standards. It did not matter if the engine was not the best. Its overall performance was not important. Zn fact, a car could be practically dead but it would never be abandoned. Its value was in direct proportion to the location of its parking space. The affluent neighborhood cars had a higher price than cars of a less desirable neighborhood in spite of being of the same make, year and Condition. Two cars of equal cost when new were now worth more or less depending 6n the location of the parking space assigned.

Auto showrooms in the city, took on a strange appearance. No longer were new cars exhibited prominently, if at all. They were filled with shiny old cars. Time passed and old cars did not need to shine at all. Old cars needed a fashionable parking space. The buying and selling of parking spaces seemed more and more important than the condition. Unbelievably, the cost of a car assigned an exclusive parking space was now double the selling price of a new car and rising.

A speculative market arose. People would buy old Cars with their space and never use the car. It was held for a rise in value which did not take long to come. The car was moved occasionally to prove that it could be used. The city fathers began to wonder about the new game in town. Old cars are now more valuable than new cars. This was strange but acceptable because the prospect of going back to the old way was too horrible to think about. The streets were clear and usable. After all, that was the problem to begin with. Pollution was less because of the decreased number of cars in use. The experts felt that soon the advantage would disappear if the old cars were not kept in tune.

Time passed, nothing changed. One day a new thought arose. Here was a new source of a tax. It's only fair that each space pay something to the city for the monopoly or right to a parking space.

The question of how to levy this tax was not easily settled. Many proposals were tendered. The dispute raged on. Some said, "The total value of the car and spot should be evaluated or assessed and then the tax should be levied on it."

Example: car - $ 500
+ space - 5,000
$5,500 x 1% tax rate = $55 tax

Some said each space should be taxed at $50 regardless of its value. Some said tax the value of car only, the bigger the car the more valuable, the greater the tax. But most people argued that it was the location of the space that created the greater part of the value. Also, the car was originally taxed when built. Also the parts and repairs were being taxed. So the decision to assess and tax the parking space only was implemented.

The value of the old car was directly related to its parking space location, therefore its value could be determined by replacement value only. But who would want to build ~n old car so as determine replacement?

The conclusion reached was as follows: The location formed its greatest value. Therefore the car had very little value and it was decided to ignore this completely. Henceforth, for the purposes of taxation, the location value of a parking space would be used to determine the tax. The tax rate would be varied from year to year, depending on how much money would be needed in the city. The system worked well and most people were happy.

The auto industry was very unhappy. Unemployment rose, factories were shut down. Total production dropped and the industry faced the prospect of other cities adopting the great city's plan. What to do? Most people could not believe the simple solution. Why not keep the present system except for one change. The present owner of the parking space, would be given the right to park any car that they owned on his space.

With the simple change came the avalanche. The new car market exploded. The desire to own a new car, with prestige lower upkeep, less mechanical problems, etc., became desirable again. Old cars were junked and most spaces were occupied by new cars. The fashionable, affluent neighborhood sported their Mercedes, Porches, Cadilacs and Lincoln's. Everyone was happy again. The bad aspects of the plan had been eliminated; the good was retained.

And still the thinking went on. Why should individuals who owned their parking spaces, be allowed to sell them. The going rates for spaces had reached $15,000 per parking space and more. This price was gained in the very exclusive neighborhoods other neighborhoods paid $10,000 , $5000, $1,000, $500 down to $50 a year. Since the people demand for car space created this value, why not tax this value and possibly eliminate or substitute for other nuisance taxes.

It was decided that all parking spaces would be assessed at their market Value. The market place or speculative market knew how much each space was worth and the brokers of this market were as}.-ed to help assess this market. After the values were set1 and annuity 10% tax would be levied in this space value. Example:

Space Value = $15,000 ~ 10% tax = 10% x $15,000 - $1,500 annual rental value tax. A great sum of money was realized and some of it was used to hire more police. They were needed to police the streets so that cars would not be broken into or stolen. It was also noted that the stolen car rate dropped drastically for two reasons. Cars could not be parked anywhere and there were more police guarding the streets. Also, the general crime rate dropped. More police meant less crime. The fringe benefits accruing from this new tax source continued to grow almost daily.

The city could not believe how well its master plan was working. Time passed other suggestions were offered to help the city solve its problems.

Some people suggested that taxing all other land and not taxing buildings could easily produce great benefits.