Tuesday, 21 July 2015

Why paid parking is a good idea... sometimes

To some people, it sounds like a bad joke: "You know your vice-chancellor is an economist when... paid parking is being implemented at your university campus". But it's no joke - paid parking will be implemented at the University of Waikato from the start of 2016. This is in spite of a fairly large amount of opposition from students, both current and former. It might be contagious too - Wintec is also introducing paid parking at its Rotokauri campus across town, while the costs of parking rise elsewhere as well with commuters in Auckland looking at paying more for parking.

Here's why paid parking is a good thing. If you've ever tried to get a parking on campus during the A or B Semester, you know it is almost impossible to find a space in the Gate 1 car park after 8:45am. Gate 2B isn't much better, and Gate 10 (near the Management School) is often full as well (and far from most lecture theatres unless you are a management student). Clearly there is a shortage of parking at these peak times.

This shortage can be easily demonstrated as in the diagram below. The supply of parking (S) is fixed at the number of available parking spaces (at QS), while the demand curve (D0) is downward sloping (there would be less demand for parking spaces if the price of parking increased). At the current zero price, the quantity of parking spaces demanded (QD) is larger than the available supply. There is excess demand for parking spaces - some drivers miss out on parking spaces, and resort to parking on nearby streets.

However, that isn't the end of the story. These 'free' parking spaces aren't free at all. In order to ensure that you get one of the free parking spaces, you have to leave home early since otherwise you may miss out on a space. Not only that, you might have to spend some time driving around the car park looking for a spare space. Or you might miss out and have to park further away on a side street. All of these situations cause drivers to incur an opportunity cost of parking. They are giving up time in order to get a parking space, and that time is costly to them. So, while there might not be a monetary cost on parking spaces, that doesn't mean they are zero cost to drivers.

The response of the University to the excess demand for parking spaces is to introduce paid parking from next year. At $2 a day, that probably isn't enough to raise the price all the way to equilibrium (Pe), but let's say that the price increases to P1. This reduces the quantity of parking spaces demanded (from QD to QD1), because some students (and staff) will choose to leave their cars at home and walk or cycle or take public transport to the campus instead. The quantity of parking spaces supplied remains constant (at QS), and the excess demand (or shortage) of parking spaces reduces. This means that drivers will find it easier (less costly in terms of time) to find a parking space in the morning, and they might not have to leave nearly as early in the morning to secure a parking space. So, while there may be a monetary cost to parking from next year, the non-monetary cost will be lower.

So, paid parking might be a good idea. But not always. Now consider the situation when it is not A or B Semester, i.e. when there are fewer students on campus. Demand for parking spaces is much lower in off-peak times (D1), and this is demonstrated in the diagram below. Notice that the quantity of parking spaces demanded at the zero price (QD2) is lower than the number of available parking spaces (QS). There is excess supply of parking spaces, i.e. parking spaces are not scarce. Notice there is no equilibrium price because there is no non-zero price that brings supply and demand into balance. In this case, when the university imposes the $2 per day charge (P1), the quantity of parking spaces demanded falls even further below the quantity supplied (to QD3). the car park becomes even emptier (the excess supply of parking spaces increases). This clearly makes drivers worse off, because there are no offsetting savings in non-monetary costs.

I've been asked by a few students (and the union) if I'm in favour of paid parking. I am in principle, but with a caveat - it should only apply to peak teaching and parking time, i.e. during the A and B Semester. That would seem a sensible way to manage the excess demand for parking spaces during these peak times, while not imposing unnecessary costs on staff and students during off-peak times. What would be even better would be to use the car park revenue to lower the costs of alternative means of transport - for example, Massey University is currently celebrating ten years of free buses for students and staff.

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