## Charging for parking

In a potentially interesting move, the Delhi government has declared that starting from 2016, only half the stock of Delhi’s cars will be allowed on the road each day, based on the parity of the number plate.

While in theory it might work, the dependence of Delhi people on cars, ownership of multiple cars and possible number-trading might render it moot. Also, given that not everyone uses their car every single day, a simple car swap arrangement (like Zipcar; but we need to figure out liability properly) might defeat this regulation.

The more sure-fire way to reduce the number of cars on the road is to impose a congestion surcharge but it it is not an easy regulation to implement – given that you’ll need electronic modes to collect tolls, devices in cars, etc (not that it hasn’t been done, but given India’s scale it’s considerable effort).

A better way to implement congestion surcharge is to charge economic rates for parking. In most cities in India nowadays, parking is highly subsidised (in terms of money) which results in more people taking their cars out, not being able to park them, and creating further congestion by driving around looking for a place to park (Brigade Road in Bangalore is a good example of parking-led congestion thanks to slow-moving cars looking for a place to park).

The question is what an economic rate for parking must be, and that can be determined by looking at the prevailing real estate rates in that area. In the area I live in Bangalore, for example, the “guidance value” (rate used by the municipal corporation to determine the “fair value” of a property in order to tax sales) is about Rs. 8000 per square foot.

Assuming a price to earnings ratio of 20, this translates to Rs. 400 per square foot per year, or little more than a rupee per square foot per day. A parking lot is about 9 feet wide and 18 feet long (based on US standards, assuming India is the same). Let us assume a 50% overhead for space needed to move the car in and out of the lot. Based on this, the “fair rent” for one car parking space in my area is 18 * 9 * 3/2 * 400 / 365 = ~Rs. 270 per day, or translates to around Rs. 11 per hour.

Notice that all the calculations above were either multiplications or divisions, and hence the per hour parking price is directly proportional to the guidance value of property in the area. Based on the numbers above, a good rule of thumb for “economic cost” of an hour parking space is 11 / 8000 or about 14 basis points (a basis point is one hundredth of a percentage point) of the per square foot guidance value.

Of course, there are transaction costs (of putting the car in and out) and demand varies by time of day (so we might have an element of “surge pricing”). Yet, what we have is a good rule of thumb to decide the per hour parking rates.