The Shadow Cost of Parking Minimums: Evidence from Los Angeles County

Minimum Parking Requirements (MPRs) are almost universal in U.S. cities and common in the rest of the world. In the U.S., parking requirements for commercial buildings commonly require 700 ft2 of parking for each 1000 ft2 of floor space. To the extent this is a binding requirement, MPRs could result in distortion in commercial development. MPRs require either the allocation of land for parking, or very costly substitution of structured parking for land. Therefore, MPR distortions are likely to increase with the value of land. A steep gradient in the cost of the MPRs leads to the possibility that MPR costs could be high enough to change where developers find it profitable to locate commercial development. In particular, MPR costs may be high enough in dense, high land-value areas to discourage development or move it to outlying areas. We use a Mixed Geographically Weighted Regression (MGWR) approach to estimate a hedonic specification using sales of office properties in Los Angeles County. This approach allows local variation in the estimates of marginal values of key parameters, including the value of on-site parking. To control for unobservables, we use the Linn (2013) method to incorporate pre-period prices into the MGWR estimator. Then we use these hedonic estimates plus locally-specific estimates of parking costs to estimate the cost of MPRs on a property by property basis. We check the robustness of the results by comparing our estimated costs to the in-lieu-of-parking fees that are offered by some of the cities in our sample. Our estimates of MPR costs are close to these market values for escaping the parking requirement. Our results show a significant gradient in MPR costs. Smaller properties in dense, high land value areas in Los Angeles can have MPR costs that amount to about 30% of building construction costs while properties in outlying areas often do not have binding MPRS. This gradient is likely to be sufficient to move development from high land value, dense, city centers into lower value areas. Our suite of methods could be applied to other building and zoning regulation, such as height regulation and inclusionary housing where the cost gradient is also likely to be important.