Parking Management and 
Transportation Mode Choice

Editorial by City of Longmont Transportation Planner Ben Ortiz

Economic principals applied to transportation projects can have big impacts on the demand and function of transportation systems. Case in point: parking and transportation mode choice.
I’m thinking of a parking structure at a very popular mall. Every time I went to this mall, it took me about 20 minutes to find a space. The parking was so scarce, once you found a spot, you felt like you couldn’t let go of it. How much did it cost to park? It was free, of course, like the vast majority of parking in America!
The answer to this problem of scarce parking seems obvious. The mall should build more parking. But, the parking was underground. According to a report by Gary Cudney, P.E. the median cost of new parking structures is approximately $20,000 per space (see Parking Structure Cost Outlook for 2017). The median as opposed to the average represents the middle value between the lowest and the highest value, which means that in certain markets, the cost to build a single parking space is substantially higher. In the “High Cost of Free Parking,” Don Shoup estimates that in some markets, like Phoenix, the cost of an underground space is $26,000 whereas in Honolulu the cost per space is $48,000 in 2014 dollars. Building more parking hardly seems like a winning proposition in the case of our shopping mall, which was located in a high price market.
The only other alternative would be to price it which they eventually did at $3 per space with no time limits. It didn’t help because they didn’t use the right pricing approach. The $3 wasn’t enough of a price to deter people from accessing the parking structure, and once you paid, you could stay there all day long without additional costs.
There are two types of pricing approaches that transportation planners use when pricing policy factors into transportation planning decision-making: average-cost pricing and marginal-cost pricing. Since we’re in Colorado, let’s use the pricing of lift tickets as an example of each. When you buy a lift ticket, you pay a set price for that ticket. Let’s say the cost is $100 for an all-day ticket. If you go on one run and sprain your ankle at the bottom rendering you unable to ski for the remainder of the day, then your average cost for that ticket is $100. If you do two runs, then the average cost drops to $50; four runs it becomes $25 and so on. So, after you’ve paid your $100, which now represents a sunk cost, you have a great deal of incentive to get as much use out of that ticket as possible because you’re not getting that money back.
On the other hand, what if you were charged $20 dollars every time you got onto a lift? What this means is that the more you use the slopes, the more you pay. This is an example of marginal cost pricing. You are paying additional for each incremental increase in usage. A marginal cost pricing scheme would work great for me, because by noon my legs are shot and I’m ready to go home. But, for the diehard, they’d probably exceed the cost of the all-day ticket because they ski from opening until closing.
Back to the parking garage. So far, we’ve examined our parking garage with the price at zero and at $3 for unlimited use of a parking space. The third scenario would be to see what happens when marginal cost pricing is applied where you get charged more for longer stays.
The goal would be to price the parking so that every 10 to 15 spaces are open and available so there is never a need to cruise for a space. You get to park immediately. But, how do you get to the correct price? The answer is easy, but it requires a little experimentation.
Let’s say you implement a pricing scheme of 25 cents for every half hour, and the transportation planner who was hired to fix the parking demand problem finds that people are still circling around for 15 to 20 minutes looking for a parking space. The answer is to raise the price incrementally, perhaps by another quarter per half hour. After raising the price to 50 per half hour, the planner sees some improvement: one out of every 30 spots are now open, but it’s not good enough. It still requires hunting for a space. So, the planner raises the price again to 75 per half hour and eureka! The desired outcome of a vacant space for every 10-15 parking spaces has been achieved.
If your hourly salary is $30 and you only need 30 minutes to take care of your business at the mall, would 75 cents to park without delay be a better bargain than driving around for 20 minutes, which is equal to $10 of your hourly salary? Of course it would! This is how pricing parking appropriately can create win-win scenarios for both businesses and consumers. It seems counterintuitive, but charging for parking where parking is in high demand is good for business. It enables more customers to come in and out of the shopping area in a shorter period of time.
Charging for parking also encourages shifts in transportation modes away from the automobile and toward transit, bicycling and walking. For example, some studies found that eliminating free parking at the workplace can reduce single occupancy vehicle commuting between 19 and 81 percent, which by consequence would lead more people to ride a bicycle to work or take another transportation mode other than driving alone (Richard Willson and Donald Shoup). The revenue generated from charged parking may even be able to provide more facilities to those who choose to walk or ride a bicycle, typically the people working in high-demand areas.
Would you like to know more? Read “Commuter Mode Choice and Free Parking, Public Transportation Benefits, Showers/Lockers, and Bike Parking at Work: Evidence from the Washington, DC Region” by Andrea Hamre and Ralph Buehler, Virginia Tech University. See also “The High Cost of Free Parking” by Donald Shoup, University of California, Los Angeles.
Feel free to send questions or comments to Ben Ortiz.