Massive digging operations like this, which are often required to provide underground parking, plus the parking construction itself, can cost upward of $50,000 per space. Photo by City of Rain.
There’s a debate happening right now over whether to apply “value capture” to a statewide parking reform bill — California State Assemblymember Laura Friedman’s AB 1401. As someone who supports value capture in the context of upzoning, and advocates strongly for it in my book, The Affordable City, I wanted to weigh in. I believe it’s important to explain why parking reform is fundamentally different from other housing reforms, why it’s not amenable to value capture policies, and why I oppose value capture in this context.
First, for the uninitiated, what is value capture? Put simply, it’s an approach to housing policy which seeks to convert private windfalls into public benefits when policy changes increase the value of land. If an empty parcel is zoned for only two units of housing, and the city changes the zoning to allow for 20 units, the value of that property is very likely to go up. If allowable density is the only thing the city changes (i.e., if there’s no value capture), and a developer buys the property from the owner at this new higher price, the owner, a private party who didn’t really do anything to earn that higher price, “captures” the windfall. The public gets 20 units of housing, which is good, and those units will probably cost less than the two that could have been built under prior zoning rules, which is also good, but there’s definitely money being left on the table.
Enter value capture. If we pair the upzoning with a value capture mechanism, commonly an affordability mandate (as with the city of LA’s Transit-Oriented Communities program), the value of the property will go down somewhat — the cost of the mandate is capitalized into the value of the property (the residual land value, if you want to be specific). But so long as the property is still more valuable to a developer who wants to build 20 units with an affordability mandate than two units without one, the former developer will win the bid for the property and we’ll end up with 20 units of housing and a couple of them will be set aside for low-income households. We’ve captured the value and converted it into a public benefit: two income-restricted affordable homes which otherwise would have rented or sold at the market rate. There’s more that can be said about value capture, good and ill — it’s not perfect, and there are trade-offs — but that’s the core of the idea.
Why Parking Reform is Different
So why shouldn’t this also apply to parking reform? Parking spaces, after all, are expensive to build (often upwards of $50,000 each in dense urban areas) and excessive parking requirements can complicate building designs, especially on smaller parcels, raising costs even further. If we’re reducing the cost of construction for developers by reducing parking requirements, then doesn’t that increase the amount they’re willing to pay for land, and won’t those additional profits flow to private property owners rather than the public good? It’s an intuitive conclusion for those of us who believe in value capture, but it’s misguided for several reasons which I describe below.
1. It’s double-dipping
When developers build housing with fewer parking spaces, this does reduce their costs, but it also reduces their revenues. Parking is an amenity, and its an amenity that many people value quite highly. Developers can’t charge as much rent for a unit with limited or no parking. Fundamentally, the problem with trying to “value capture” parking reforms is that the value has already been captured by the tenants — they’re paying less rent because their units are parking-lite or parking-free.
Note that this is different from the example of upzoning a duplex parcel to allow a 20-unit development. In that case, the housing is qualitatively the same in both cases. Yes, each unit in the 20-unit development is part of a larger building, but the units may still include parking, be roughly the same size as the duplex units, include the same finishes and appliances, etc. The upzoning allows the developer to build more homes without substantially changing the nature of the individual units — or their value, broadly speaking, to prospective tenants. Whereas before they could profit from only two units, now they can profit from 20 units of the same overall quality at the same overall price. That’s a lot of value, and without something like an affordability mandate that value would be captured for private benefit by the property owner.
Contrast that with parking reform. The developer is likely building the same number of homes at the same scale and quality, but without parking. They save the expense of building the parking spaces, but they also have to charge tenants less in order to rent out their units. The value has already been captured by the tenants paying lower rents. If we add a value capture mechanism on top of this reform, by, for example, requiring that 10% or 15% of the units rent to low-income households, we’re double-dipping. Not only does the developer have to charge less for for their market-rate units because they lack parking, they also need to charge way less for the subset of their units which are income-restricted. The math simply won’t work in the great majority of cases, and the developer will instead build their project with the locally-required parking minimum, or build nothing.
2. It’s not usually a windfall
Parking reforms are not an unknown quantity in California. Here in Los Angeles, parking reductions are built into the TOC program, and the TOC program is producing more housing than any other program in the city. This may be the source of the confusion: If the TOC program is so popular, and if it includes parking reforms, then the parking reforms must be the source of its popularity.
This is mistaken, and the proof is that many developers do not take advantage of the parking reductions offered by the program. Every developer takes advantage of the density and floor area bonuses, because those are the aspects of the program that developers truly value. These latter incentives are akin to the upzoning example above: They allow developers to build more units without substantially changing the appeal of each individual unit, and developers are happy to set aside some units for low-income households in exchange.
If parking reductions were truly a windfall, every developer would utilize them. Why wouldn’t they? If they could reduce their construction costs at a rate of $30,000 or $50,000 or $75,000 per space, with limited trade-offs or none at all, they would jump at the chance. Many don’t, which indicates that parking reductions, while appealing in some cases and certainly positive from a societal perspective, offer relatively marginal value to most developers. Rather than being the difference between average profits and a windfall (putting aside the fact that windfalls mostly accrue to property owners and not developers anyway), parking reductions are more likely to benefit projects teetering on the edge of feasibility. They’re the difference between a development with reduced parking and average profits, or no development at all. And we need housing — especially housing unburdened by the cost and environmental impact of parking.
3. It’s bad for the environment
Last, let us not forget that parking reform isn’t just about affordability. It’s also about the harm that excessive automobility does to our health, our safety, our access to opportunity, and our environment, and the well-established role that oversupplied parking plays in all of it. The fact that we require parking at all, to the detriment of our cities and their residents, and the planetary ecosystem as a whole, is inexcusable. We know that parking is harmful, and that housing is essential, and yet we mandate parking and only encourage housing — if that. No property owner in California is forced to build housing, and no city is forced to build it if their zoning rules lead to little or no development. But if anyone does build homes, parking must accompany it. Housing is optional, but parking is mandatory. We should be ashamed of that.
Even when parking minimums are reduced or eliminated, as they have been in the parts of Los Angeles touched by the TOC program, most developers still build more parking than required, and often more than one space per unit. This is true even in areas with very high quality transit service. If value capture is a condition of parking reform, participation will almost certainly be very limited, and the result will be more parking, higher-cost housing, and a worse and more dangerous environment for everyone. No one can promise that windfalls will never occur, but the rare private windfall would be a small price to pay for safer, more sustainable, less car-oriented cities. Value capture has its place, but parking reform isn’t it.