The Unintended Consequences of Free Parking

When a resource is underpriced, people tend to overuse it. In cities around the world, free or cheap parking leads to a familiar scene: drivers endlessly circling the block, waiting to happen upon someone leaving. Urban planners call it "cruising for parking." In congested areas, drivers looking for a spot account for nearly 30 percent of traffic.

In Los Angeles' Westwood Village, for example, drivers circled for the equivalent of 950,000 extra miles and burned through 47,000 gallons of gasoline in a year, just looking for a place to park. Wasted time, wasted gas, clogged streets, air pollution—these are the hidden costs of underpricing the curb, as UCLA economist Donald Shoup argued in his 800-page, 2005 classic tome, The High Cost of Free Parking. In theory, the fix is simple. As Shoup argues, cities should price curb space based on supply and demand and then reinvest the revenue in infrastructure improvements. The price of a spot should be targeted so that one or two spots remain open on every city block.  Instead, city planners often require that developers add parking spaces when erecting new buildings. Those mandates eat up space, increase construction costs, and make housing more expensive, without ever addressing the root problem. Guatemala City doesn't mandate new parking, nor does it price its streets. This tragedy of the commons, however, created an entrepreneurial opportunity.

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