Last year’s hit film The Big Short depicted various investors who, realizing that there was a housing bubble in the years before the 2000s crash, found ways to “short” housing, betting against the market and ultimately making a killing when the crisis hit. Looking forward, there’s a plausible case to be made that this might be the time for a “Big Short” in parking, as a confluence of the growing popularity of walkable neighborhoods and the arrival of self-driving cars may make our current levels of parking way over-supplied compared to demand in the near future.
There’s a lot of speculation that the advent of self-driving vehicles could create a huge surplus of parking. A recent paper by University of Texas Professor Kara Kockelman and her colleagues estimates that in urban environments, self-driving cars could eliminate the need for about 90 percent of parking. The theory is that fleets of on-demand autonomous vehicles would substitute for most private car ownership, that cars would nearly always be in use—and when not in use could be stored in peripheral low value locations—with the result that the demand for parking, especially in urban centers would collapse. If that’s the case, a whole lot of private parking structures may suddenly find themselves with fewer customers, less revenue, and a badly broken business model: exactly the conditions for “shorting” this industry.
So who, exactly is “long” in the parking market? Well, there are some private firms who build and operate parking lots. But in many places around the country, the entities that have made substantial future bets on parking are local governments. Since the 1930s, city governments have been borrowing money to build and operate municipal parking lots for public use. Most big cities operate a substantial parking enterprise. Not only to most communities provide copious amounts of under-priced parking in the public right of way—with devastating impacts on travel behaviour and urban form—but many cities build off-street parking lots and structures, often in central commercial districts. For example, The city of Los Angeles owns 118 parking facilities with more than 11,500 parking spaces. And cities have been regularly expanding the supply of parking, often relying on debt financing, on the expectation that parking revenues will be sufficient to cover the costs of bond interest and principal. For example, the City of Miami Beach is issuing $67 million in in revenue bonds to expand its convention center parking garage. Like home mortgages, circa 1999, this mostly seems like a boring, low risk business. Cities borrow money on the bond market and then pay it back out of parking revenues. And so far, at least, municipalities have had little trouble making payments.
Given that the expected lifetime of parking structures—and perhaps even more critically, the repayment period for the bonds used to finance them—is measured in decades, the potential advent of autonomous vehicles is a live issue. So what happens if there’s a sea change in the market for parking, and if parking revenues fall—or perhaps fail to live up to municipal expectations? A couple of recent case studies show that shortfalls in parking demand are not purely an academic concern.
In New York, the $238 million parking garages built next to Yankee Stadium has gone bankrupt—it failed to meet its expected occupancy levels—and the local government is out more than $25 million so far in expected revenue from the garage—in addition to more than $100 million in public subsidies that supported its construction.
In Scranton Pennsylvania, a local parking authority issued millions of dollars in bonds backed up by the city’s guarantee of its full faith and credit. When demand for parking slumped, the parking authority could no longer pay debt service, and in 2012 came to the city to make up the shortfall. Initially, the city balked at making the payments, but found its credit rating jeopardized, and ultimately relented, using other city funds to make the bond payments. Even so, the crisis hasn’t abated: demand is still depressed, the garages are deteriorating, and the city is now looking at demolishing the top levels of two of the older garages rather than repairing them.
The financial viability and implied risk of borrowing millions to build parking garages hinges directly on the accuracy of forecasts of the demand for parking. That issue is a live one in Portland, where the city’s urban renewal authority is issuing $26 million in bonds to finance an 425-space parking structure adjacent to the city’s convention center and a proposed headquarters hotel. The site is also adjacent to the city’s most traveled light rail lines and is served by the newly built streetcar. It is just a few blocks from an apartment building with the nation’s largest off-street bike parking facility.
But the big question, raised by the Portland Shoupistas, is whether, ten or 20 years from now, there will be any market for hundreds of additional off-street parking spaces in a neighborhood that already has 3,300 on-street and structured spaces.
Already, according to Bike Portland, car rental demand is lagging far behind growth in hotel occupancy. Visitors to Portland—and especially attendees at convention events—choose not to drive, and instead take advantage of the city’s diverse transit system. In a brilliant bit of statistical journalism, Bike Portland’s Michael Anderson pulled together data showing how even as the city has recorded increasing numbers of tourists and convention attendees, visitor car rentals have been in steady decline.
In addition to growing uncertainty about the demand for parking in the future, the other factor which makes it hard to answer our question about whether now is the time for a “Big Short” in parking is the paucity of data about our public sector parking infrastructure. In a growing world of big data and smart cities, one thing that is surprisingly difficult to find is the total number of municipally owned and operating parking lots and structures. While some data sources show the location of publicly accessible parking—like Parkme.com—they don’t provide data in a way that allows one to easily discern the total number of spaces in a city or their ownership.
One hint as to the scale of the municipal parking enterprise comes from the Census, which tabulates data on city budgets. It reports (2013 State and Local Government Finances) that in 2013, the total parking revenues of municipal governments nationally totaled $2.7 billion.
There’s a good chance that many of these parking lots will become stranded assets: expensive, debt-financed projects that no longer generate enough revenue to cover their costs of construction and operation. When we add in the considerable social costs of subsidized parking and driving, newly constructed parking structures in cities may be the urban equivalent of new coal-fired power plants: obsolete, value-destroying activities. There’s not a lot cities can do about previous decisions to take on debt to build parking garages, but going forward, it seems like they ought to take a very careful look at whether it’s a sound investment, or whether they’re setting themselves up to be on the wrong side of tomorrow’s “Big Short.”