The environmental and welfare implications of parking policies

Parking policies have significant environmental and economic implications, which have often been left unconsidered. This paper reviews the relevant literature to provide a deeper understanding of the main environmental and economic consequences of common parking policies, and suggest policy options to protect the environment and increase social welfare. The environmental consequences of parking manifest themselves in open space and biodiversity losses caused by the construction of parking space, and in emissions of greenhouse gases and air pollutants occurring while cars are cruising for parking. Economic consequences are reflected in the time costs incurred while cruising for parking, and in time losses from traffic congestion caused by cruising. These costs come on top of construction and maintenance costs, as well as the opportunity costs of alternative land uses. As long as these environmental and economic costs are not reflected in parking prices and decisions over parking supply, they cause social welfare losses. This is a common failure, which also induces individuals to underestimate car use costs and, thus, travel more kilometres and cause more emissions of greenhouse gases and air pollutants, and more congestion. In the absence of road pricing schemes internalising these externalities, this additional travel inflates welfare losses.

The environmental problems and welfare losses associated with parking are largely caused by policies encouraging parking space oversupply and parking prices set lower than the social costs of provision. This paper discusses policies in the context of on-street parking, parking allocated to residents, parking provided by employers to employees, and parking in shopping malls and commercial downtown areas. The discussion focuses on the environmental, economic and social effects of these policies, as well as on examples of good parking policy practices from a number of OECD cities.

Based on this discussion, the paper provides a set of suggestions for the development of more efficient and environmentally sustainable parking policies. Key suggestions pertain to: (i) appropriately pricing on-street parking and residential parking permits to prevent both cruising and capacity underutilisation; (ii) reviewing, and if possible removing, minimum parking restrictions for new residential and office buildings to eliminate parking overprovision and increase housing affordability; (iii) reconsidering exemptions of employer-paid parking from income taxation; and (iv) encouraging employers to offer the cash equivalent of the parking subsidy to employees who do not receive free (or subsidised) parking. Such policy changes may not only lead to economic efficiency gains and environmental improvements, but also to higher government revenue. Most of the suggested changes are also likely to lead to distributional benefits. In the cases where vulnerable population groups are negatively affected by some of these changes, these groups can be compensated through targeted complementary measures.