Thursday, February 2, 2012

The Need to Tax Urban Surface Parking Lots

Surface parking lots are one of the most harmful forms of development in an urban environment.  They are devoid of the density, mix of uses, and pedestrian amenability that make for successful cities, as demonstrated by New Urbanist planning principles.  To discourage such lots, cities need to modify their tax codes to specifically target urban surface lots.

Surface parking lots in cities proliferate because they are an easy way for a landowner to gain income.  Since they are in cities, surrounded by high density buildings, there is demand for commuters to park their cars.  The owner of a surface lot is able to meet this demand without any investment more than pavement.  Urban surface parking is a cheap way to turn a profit on a lot because it does not require all the expenses of development such as architects, lawyers, contractors, and materials.  Furthermore, there are tax advantages because there are two aspects to the way land is usually taxed: the value of the underlying land and the value of improvements on the land.  An owner of a surface lot is subject to a high bill for the tax of the underlying land but has no improvements to add to his tax bill.  This makes the dull surface lot a prudent investment.  

However, this form of development creates externalities in the urban environment.  “Externality” is a term economists use to describe a cost to society which is not incorporated into price paid by the property owner.  In the case of city surface parking lots, the externalities are in the form of the blight surface lots bring upon the urban landscape.  They are car-centric, anti-pedestrian, and disruptive to the urban fabric.  Furthermore, they are a missed opportunity.  A city is an accumulation of dense structures and having multiple dense structures near each other creates positive multiplier effects as more businesses, residences, and shops interact.  Thus, the land in an urban environment is most useful to society as a place for further dense development.  Unfortunately, the economic and tax structures described above discourage urban surface lot owners from making the investments in construction on their property.

The solution is to discourage urban surface lots by specifically taxing them.  Many cities tax parking, but I know of none that specifically target surface lots.  Surface lots should be targeted differently than garages because garages can be built to promote density and provide walkable amenities.  For example, take this garage in Arlington, VA that has street level retail:

The above garage is an excellent combination of retail that accommodates cars and pedestrians.  There is demand for drivers in cities and that demand should be met by garages.  Urbanists should not be so unrealistic as to think that cars would or should be eliminated from cities.  To promote the construction of garages, which are many times more expensive per parking space than surface lots, governments should specifically tax surface lots at a higher rate.

One example of the damaging effects of surface parking lots in an urban environment can be found in Cleveland’s Warehouse District.  The Warehouse District is home to dozens of architecturally rich buildings over a hundred years old that have been repurposed for apartments, offices, and restaurants.  However, for all its adaptive reuse successes, missed opportunities are apparent when viewing this before and after comparison between the neighborhood in the 1960’s and today.

The images show that the density of the original neighborhood is now pockmarked by surface parking lots.  A few years ago there was a plan to convert the surface lots into a dense mixed use neighborhood, but it was cancelled when the real estate market crashed.  To encourage construction on these lots, Cleveland should tax surface parking at a higher rate than garage parking.  If paired with proper zoning, this will encourage either high rise development or garages with ground floor retail, either of which would be a vast improvement over the status quo.  The interruption of the urban fabric by parking lots is not a problem unique to Cleveland.  Other bloggers have identified a proliferation of parking lots as a problem in cities such as Indianapolis and Atlanta, among others. 

A tax on surface parking lots will not instantly make it financially feasible to turn every lot into a high rise, but it will narrow the gap between the profitably of a barren surface lot and a lively building.  Encouraging dense, multi-use construction is exactly what governments should be doing to add value to their cities.