The Case for a Tax on Parking Lots

A Seattle parking crater.
Even a booming city like Seattle still has a lot of land tied up in parking lots. Photo: The Urbanist

Parking lots make cities less walkable, bikeable, and transit-friendly. They crowd out space for housing. They erode the tax base.

A few American cities have special taxes on surface parking lots that create an incentive for redevelopment, and Seattle is one of them. The trouble is, says Doug Trumm at The Urbanist, Seattle’s parking lot tax should be higher. Here’s why:

Seattle last raised the commercial parking lot tax in 2010 in order to help fund the Mercer Street project and the Seawall replacement on Elliott Bay. Increasing the tax 2.5% raised $5.4 million that year.

Councilmembers Kshama Sawant and Nick Licata proposed raising it again in 2014 to prevent Metro cuts, but Mayor Ed Murray succeeded in getting his plan passed to increase the sales tax and vehicle license fees to close the gap. Those councilmembers contended that increasing the Commercial Parking Tax from 12.5% to 17.5% would raise $13 million that year. We should raise the tax more aggressively to encourage the conversion of surface parking lot properties and encourage housing production even as the housing market cools off a bit.

In effect, a parking lot tax would work like a limited version of a land value tax, which is a property tax levied on the value of the land rather than the improvements. For some market urbanists, a land value tax is the holy grail because of the incentive to redevelop low-value parcels it’d create. Unfortunately, converting to a land value tax is politically fraught and a pure land value tax may fall unfairly on low-income and middle class households. Back in 2014, Sightline Institute did a series on land value taxes (LVT) and their feasibility in Washington state. Their findings suggested a carefully worded LVT could square with the State Constitution’s tax uniformity clause. But constitutionality doesn’t make a land value tax politically likely.

The surface parking lot excise tax could take the place of a LVT and likely extract one of the biggest benefits: converting the lowest value uses for land to higher uses, and it’s hard to get much lower than a surface parking lot in a dense urban environment. Many surface parking lots in Seattle are already controlled by developers who are biding their time for the right moment to build (and some have already pounced). This tax would reduce speculation and nudge them in the right direction so that the wider Downtown area including Lower Queen Anne, Belltown, South Lake Union, and First Hill would have fewer parking craters.

More recommended reading today: Seattle Transit Blog looks at how car congestion slows down buses and imposes huge costs on transit riders. And BikeWalkKC reports on the light sentence for the driver who killed cyclist Glenda Taylor.

21 thoughts on The Case for a Tax on Parking Lots

  1. What’s wrong with letting the market decide? If a developer believes they can extract more value out of a piece of land than its current use, wouldn’t you think that they would propose to do so? If not, then there likely isn’t a better use for what the land is currently worth (and earning).

    This “nudging” is no different than eminent domain, which should be used sparingly.

  2. You assume there are no external pressures. In this case, the tax on building improvements incentives a landowner to keep his land a parking lot in order keep the taxes low until land values to get to their desired levels, then sell.

    If you shift the tax burden to the land value, this incentives the landowner to build something that would make better use of that land.

  3. So you’ve identified a problem: taxes are too high, which is preventing desirable economic activity.

    And your first though for a solution is not to lower taxes on the desirable economic activity, but to make taxes on other, less desirable economic activity even higher?

    Is this really the best course of action?

  4. Taxes being too high isn’t the issue. It is that taxes or assessed values are (possibly) unfairly proportioned to improvements rather than the value of the land.

    Because of this, you can sit on vacant land and pay little taxes along for decades waiting for other landowners to improve their land, thereby make yours more valuable. It’s called land banking and it’s a problem in places with housing shortages.

  5. …that sounds exactly like taxes being too high. Especially in a market with a housing shortage, where you literally have insatiable demand and little supply.

    If you have a housing shortage, why use vinegar over honey? Make it easier to build things, not harder to not build. You’ll get more density quicker that way.

  6. Maybe a better idea is to tax vacant land more while charging lower taxes if more is built on that land (i.e. a single family home on the land would mean lower taxes than a vacant lot while an apartment building would have still lower taxes).

    This would prevent land banking while also lowering real estate taxes on desirable development.

  7. Because there is no free market to speak of: The urban real estate market is, by design, controlled by zoning, permitting, taxation, street design, etc…

    In urban planning, as in just about everything, ‘the free market’ is an aspect and not a dogma.

  8. You are my hero ! You get it right every time. Ideally zoning would limit the amount of parking lots , and it would be useful to have a tax or a penalty that grows with the number of years the property is used for a parking lot .
    At the same time there could be an incentive to build affordable housing, with the incentive decreasing overtime .
    Housing people should always be a higher priority than housing cars .

    The other problem is zoning incentives. In NYC the Floor Area Ratio which grants more height to larger base building encourages lot hoarding, until enough contiguous lots have been assembled to get maximum height. And naturally parking are opened on these lots in the interim.

  9. Yes, just get the government out of the way and see all the complex problems of urbanism solve themselves. Worked well in Florida.

  10. Well gee, the parking garage I use already applies almost a 25% tax. How high would you like it to be?

  11. Maybe I’m just too stupid: I honestly have no idea what any of your comment or clarification means.

  12. Land Value Taxes do not get passed on to the consumer. The idea behind a land value tax is that it strongly encourages putting the land to productive use. In the event of an idle lot just sitting there, the ‘owner’ would either sell the land or they would build on it (i.e. making an actual parking structure, much more efficient use of space). And by doing this, he would be more economically efficient, would be able to handle more customers, would likely collect more revenue even while keeping prices stable or dropping them.

    They can of course try and pass it on to the consumer, but what will ultimately happen is a competitor will do what I described above and win.

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