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.

Charging for parking can solve a lot of problems

Bangalore city has this bizarre policy in that the city doesn’t charge for public parking (barring one or two roads). The ostensible reason was to cut the wings of the so-called “parking mafia”, which had taken over the concessions for operating parking lots through the city. However, not charging for parking means giving away parking for a non-monetary fee (first come first served, for example, or the cost incurred in driving around looking for a place to park). And there are a number of other problems that charging for parking can be solved that the current no parking fee dispensation doesn’t take care of.

  • The lack of parking charges anywhere in the city, including the central business district, means that it is impossible to profitably take your car (without a driver) to such areas. There are non-monetary costs that people pay for parking – cost of time, cost of fuel driving around, cost of paying touts to hold down a parking spot, etc. Now if only these costs can be monetized then it would be a valuable source of revenue to the impoverished city  council
  • Every weekday afternoon the middle of the city gets gridlocked thanks to the presence of four high-profile schools (Bishop Cotton Boys’, Bishop Cotton Girls’, Sacred Hearts and St. Joseph’s Boys) on the same stretch of road. The reason for gridlock is that people double and triple park on the four lane road (albeit with a driver in the car so it’s not strictly “parking”), and this leads to massive jams. Thanks to these schools it is impossible to move from the southern part of the city to the central business district in the afternoons. Now, if we could have dynamically priced parking on these roads, the cost of parking there for picking up kids might be deterrence enough for people to make alternate arrangements (such as school buses) for picking up the kids, and thus decongest the zone. The city has taken several other initiatives (titled “safe route to school”) but the gridlock continues.
  • Thanks to free street parking there is no incentive for people to provide for parking spaces. I live in what is classified by the city as a “mixed zone”. So there are a number of commercial establishments close to where I live. Few of them actually provide parking, leading to major parking chaos around where I live (especially if there is a function at any of the three convention centres located within 100m of my house). The presence of paid street parking can lead to more regulated parking (currently lack of regulation means parking is rather haphazard and blocks gates). It will also create an incentive for the commercial establishments to provision for their own parking spots
  • Establishments (mostly eateries, but some shops too) in the city have responded to the parking problem by providing valets – who will save you the time you would take to find a place to park. This is a rather inefficient solution. What if I have to visit four shops on the same street in an area where parking is difficult, for example?
  • Some buildings in the CBD which have excess parking space let you use their parking space for a fee that is not unreasonable. What we need is more such buildings opening up their parking spaces to public (the “park here only if you have business in my building” paradigm is nonsense). And for that they need to be assured of a reasonable fee. With the city undercutting them at a price of zero they have no real incentive to open up.
  • In the short run, until supply of parking the CBD increases, parking charges can be a good substitute for congestion charge to put a price on people driving into the city. While this will ease out once the supply of parking responds to the demand, in the short run it might work. Though it could be argued that the non-monetary costs of parking are already achieving this objective!

There are many more such reasons I’m sure you can think of. Yet, for close to ten years now the city of Bangalore has steadfastly refused to charge for parking spaces, which is extremely inefficient. Maybe we need MonkeyParking to enter Bangalore. That’s perhaps the only way the municipal authorities will recognize their folly and start monetizing their parking fees.