Pricing parking properly has benefits - Part I

Post by Denis Agar in

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Optimizing the price of parking can have all sorts of positive benefits

Boxing Week is a cherished time in many Canadian households. All across the country, consumers work themselves into a frenzy over rock bottom prices – but what exactly do those prices mean? The Boxing Day sales tradition originated from retailers’ desire to get rid of leftover stock after the Christmas rush. Some may see those prices as an opportunity to get a cheap laptop, but economists see it as a piece of information. You can learn quite a bit about something from its price. Gasoline is a perfect example; its price fluctuates hourly based on supply, demand, competition, weather and a slew of other factors.

Parking is another example. In the right place at the right time, a spot can cost obscene amounts of money, simply because demand is so high. In other places, parking is free because its owners see it as way of drawing in customers. Parking in Downtown Guelph, Ontario for instance, has been free in two hour increments since 2007, and results have been positive in drawing customers away from suburban malls and back into the core. In Providence, Rhode Island, however, where the city is experimenting with all-day free parking, merchants are complaining that business is actually down because 9 to 5 employees are taking up all the spaces without leaving any for customers.

What has emerged from experiences like these is that it is of pivotal importance to maintain the integrity of price as a tool for conveying information. In the case of Providence, the price was set too low, conveying the false impression that there was plenty of parking available. The father of the neoparking movement, Donald Shoup, claims that optimizing the price of parking can have all sorts of positive benefits. He says that the rate should be such that there are always at least a few available spaces in any given area.

This reduces the amount of people cruising the streets looking for a space, which can be a surprisingly large percentage of traffic in downtowns. At the same time, it draws customers back downtown by ensuring that they can find a space and thus reducing the frustration factor. A high hourly rate could be considered a subtle instruction to the customer to spend less time lingering in stores, which some have identified as a concern. On the contrary, a high rate means that a parking spot is used by more drivers in total because turnover is higher, leading to more business for downtown shops.

Now back to the idea of price as a form of information.  In a downtown that is heavy on offices, it seems obvious that parking would mostly be used between 9am and 5pm. If the city sets its parking meters at $1 per hour, you could expect to find parking jampacked during the day and absolutely barren by night. A fixed price can be devoid of information. The flat rate of $1 doesn’t tell drivers that there is plenty of room at night, or that they won’t be able to find a space during the day. In Part 2, I’ll talk about how Donald Shoup and his disciples have been innovating a solution to this very problem.

- post by Denis Agar. Denis lives in Toronto and his post was originally published at CityCaucus has teamed up with and cross posts columns of common interest.


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