How to turn a parking lot into $1 million: The economic opportunities of parking deregulation

One of the more exciting aspects of the Portland Transit Study's recommendations for parking on the Portland peninsula is the fact that by making better use of parking lots, a lot of empty pavement could be redeveloped into offices, housing, or businesses.

This possibility also holds huge potential for Portland's economy - and especially for the owners of existing parking lots. As a case study, let's take a look at how a medium-sized parking lot downtown could be turned into a quick $1 million for its owners, and generate additional tens of millions of dollars for the local economy, if the Transit Study's recommendations are implemented.

This particular parking lot happens to be owned by a struggling local business that has been unusually critical of the Transit Study's recommendations. It's my hope that this case study might help bring this business around to see the benefits, as Maine Medical Center and other local employers have.



It contains about 100 parking spaces on 3/4 of an acre. It's also located on Congress Street in the heart of Portland's downtown, within easy walking distance of the city's Old Port and Arts District, and directly across Myrtle Street from City Hall. The business that owns the lot has its offices directly to the south, opposite City Hall; the owners also operate a manufacturing facility on the same block.

Three local bus lines pass directly in front of this lot, the rest of the city's local bus lines begin and end their routes three blocks away at a heated indoor bus station. Additionally, the public transit services of Biddeford and Saco end their commuter and intercity bus routes one block away, at City Hall. In short, this is the most centrally-located, most transit-accessible parking lot in Portland.

So here's the question: how much money could this struggling business make if it could somehow convince the 100 motorists who use this parking lot to walk, bike, carpool, or ride transit to work instead? Or to park in some other parking lot, in a less valuable location, and make other arrangements for the last mile or so?

Well, the vacant city-owned land in Bayside recently received bids from developers that were roughly $1 million per acre. This much more centrally-located location is probably worth more, but let's use the Bayside rate as a conservative measure. Then this parking lot, at 3/4 of an acre, would fetch at least $750,000 on the free market, or $7500 per space - that's the opportunity cost of maintaining this parking lot.

And then there are the physical maintenance costs as well. Pavement is expensive to maintain, with snowplowing, new asphalt, sweeping, stormwater costs, security, etcetera. A 1999 study in Alabama pegged the maintenance cost of asphalt at about $0.50 per square yard per year (see page D-4 of this), or about $20 per parking spot. The cost of asphalt has roughly doubled since then, and since we're in Maine, not Alabama, there are also plowing costs, and more potholes and cracks to deal with, so let's call our annual cost $50 per space, or $5000 for the entire lot. The owner also pays property taxes: about $8600 worth every year for this section of their property (source).

Over 40 years, these annual costs have a net present value of over $245,000 with a 5% discount rate.

So adding up the physical and opportunity costs, unloading this field of expensive pavement to a developer would net about $1 million - a tidy little capital infusion.

But how are those 100 drivers going to get to work? Well, let's suppose that the business pockets half of the money they get and shares the other half with the 100 employees who used to park there.

At full price, half a million dollars could buy twelve years' worth of free bus passes on METRO. Another transit study recommendation is for METRO to provide bulk discounts for large employers' purchases of bus passes, though, so in reality, this sum might actually buy several decades' worth of passes. The business could also give a lump-sum $5,000 payment to 100 employees who agree not to drive anymore, but that wouldn't account for turnover; instead, the money could go into an interest-earning endowment fund and pay $30 a month for forty years to workers who don't drive.

What do you think? If your company offered half-price transit passes and a $360 annual bonus for not driving, could you find 100 volunteers to sign up? I'll bet you would. [Although deregulation of on-street parking through market-rate "parking benefit districts" is absolutely necessary to make this arrangement work... more on that in a future post.]

Here's the upshot for the business: it has the opportunity to pocket the equivalent of a million dollars immediately (from a combination of the land sale and future gains to their balance sheets), some of which it could then share with its employees in order to incentivise not driving. As an additional, less quantifiable bonus, many of these employees will enjoy a reduced cost of living as a result of buying less gasoline: this, in turn, will mitigate long-term pressure for wage increases.

But there's more. Presumably the developer buying that parking lot would want to put something there. Since it's right on Congress Street, let's assume a 6-story, 18000 SF office building with ground-floor retail space gets built. This would generate tens of millions of dollars in construction activity, and provide working space for dozens of new employees in downtown Portland, all of whom would frequent local shops and lunch spots. The sum of all the economic activity from a new 18000 square-foot office building downtown - all the salaries, rents, cleaning contracts, restaurant bills, profits, dry cleaning checks, etcetera - would add up to several million dollars injected into the local economy every year.

Replacing an empty lot with a building would also increase the taxable value of the property several times over, which would contribute more money for municipal services at City Hall. And because the former users of the parking lot are being paid not to drive there anymore, local streets will be safer, suffer less congestion, have better air quality, and require maintenance at taxpayer expense.

All told, the net benefit to the local economy would probably add up to hundreds of millions of dollars. And that's for one single parking lot. Add up the potential benefits of the peninsula's dozens of under-utilized surface lots, and we're suddenly looking at a multi-billion dollar opportunity for our local economy, with safer streets and thousands of new jobs and homes downtown.

Exciting, isn't it?