Parking Externalities in Commercial Real Estate

Abstract

Local governments have employed a variety of strategies to reduce street congestion through an increase in parking supply. These policies have been criticized as an implicit subsidy that shifts costs from drivers to the public at large. Others have noted that parking lots and structures can lead to increased water and air pollution. However, there has not been an examination of whether parking, presumably by reducing congestion, generates external benefits. We measure whether nearby parking availability influences commercial property prices after controlling for property characteristics, including on-site parking. We find that publicly accessible parking, such as commercial parking garages, generates significant aggregate externalities. We also find evidence of a significant complementary relationship between building and parking area in property values. This suggests that parking regulation could have a significant impact on property development through its effect on the value of the marginal square foot of building area. Copyright (c) 2010 American Real Estate and Urban Economics Association.

Determinants of industrial property rents in the Chicago metropolitan area

“…Similar to many prior research efforts, our research conducts a reduced form approach that analyzes the outcome (the rent level) that incorporates all of these factors. 3 Although much of the prior hedonic research has focused on single-family residential property markets, there has been an increase in interest in commercial property values and rents(e.g., Ambrose, 1990, Chegut et al, 2011, Cutter and DeWoody, 2010, Fehribach et al, 1993, Munneke and Slade, 2000, Munneke and Slade, 2001, Sivitanidou and Wheaton, 1992, Sivitanidou and Sivitanides, 1995, Brunauer et al, 2010and Conroy and Milosch, 2011 , and some of that literature examines industrial property rents (Ambrose, 1990, Sivitanidou and Sivitanides, 1995and Ryan, 2005. Most of these studies rely on a fairly small sample of observations that was accessed through a local brokerage firm.…”

The Uneasy Case for Lower Parking Standards

“…27 The log transformation of the continuous property characteristics is consistent with past hedonic literature on housing and commercial/retail/industrial properties (Hodgson et al (2006)). In addition, Cutter and DeWoody (2010) shows that this specification is superior for a similar data set. Ihlanfeldt and Taylor (2004)).…”

“…Most of this work relates to the determinants of commercial property sale indices. 7 This literature considers a variety of locational, neighborhood, building and parcel characteristics, but we are only aware of one previous study that considers the amount of parking on the property (Cutter and DeWoody (2010)). In addition, other work attempts to value environmental disamenities by examining whether property prices change in response to the listing or de-listing of hazardous waste sites near a property (Ihlanfeldt and Taylor (2004)).…”

“…In addition, other work attempts to value environmental disamenities by examining whether property prices change in response to the listing or de-listing of hazardous waste sites near a property (Ihlanfeldt and Taylor (2004)). We use a spatial hedonic approach where parking area, a characteristic that has only been included in Cutter et al (2010), is one of the characteristics of the property.…”

“…However, to the extent that most parking in downtown areas is underground and our surface parking analysis is related to suburban areas where this problem is not so severe, we have decided not to model this effect in our suburban developer problem since it would make the analysis cumbersome without additional insights. Moreover, Cutter and DeWoody (2010) indicates that, to the extent congestion effects are capitalized into real estate values, the externalities are only significant for commercial parking garages and are not large for on-site private parking. 22 Government can encourage the social amount of both surface and underground parking through the imposition of a Pigouvian tax, where the magnitude of the tax is set equal to the marginal external effect at the efficient allocation.…”