How Parking Mandates Tilt the Market Toward “Luxury” Housing

After Minneapolis slashed parking requirements, developers started to produce more affordable mid-rise apartment buildings instead of luxury high-rises.

This 70-unit apartment building was built after Minneapolis relaxed its parking requirements. It still has parking, but only surface spots, not the costly underground garage that the old rules would have required. Photo: Nick Magrino
This 70-unit apartment building was built after Minneapolis relaxed its parking requirements. It still has parking, but only surface spots, not the costly underground garage that the old rules would have required. Photo: Nick Magrino

We know that minimum parking requirements — that hidden subsidy for cars and traffic embedded in (almost) every city’s zoning code — increase housing prices. In Seattle, for instance, parking mandates inflate rents at least 15 percent.

Minneapolis recently reduced its parking requirements, setting the stage for an interesting natural experiment. In mid-2015, the city changed its zoning rules for development near frequent transit, eliminating the parking mandate for buildings with 50 apartments or fewer, and cutting the old requirement of one space per unit in half for larger buildings.

Local planning aficionado Nick Magrino reports that the number of parking spaces per unit in new buildings has been declining since then, from the range of 1.2 spaces per unit in the first half of 2014 to the range of 0.7 spaces per unit more recently. Here’s a look at the trend:

After Minneapolis reduced its parking requirements, housing developers built less parking. Graph: Nick Magrina
After Minneapolis reduced its parking requirements, housing developers built less parking. Graph: Nick Magrino

Magrino makes an interesting anecdotal observation as well. He’s seeing fewer downtown “luxury” buildings, with large platform garages on the lower floors, and more small, mid-rise buildings with some surface parking in the back and more affordable rents:

The design and rents of these places tended to be largely driven by the parking. If you’re outside of downtown, and the land isn’t expensive enough (and the zoning isn’t permissive enough) to make a tower with an above ground ramp work but it’s not cheap enough to build a surface lot, you’re going to end up digging a big hole for a parking structure. And it doesn’t often make sense to dig a big hole in the ground for a 30 unit building, so we got a lot of these six story, 200 unit l*x*ry boxes that everyone in $400,000 houses complain about in lieu of having a personality.

Underground parking spaces cost tens of thousands of dollars apiece. It’s no coincidence that we’ve been starting to see market rate, new construction housing units renting for under $1,000/month. And changing our zoning code to make that kind of unit possible eases the rent pressure on our existing housing stock, because it gets a bit less appealing to buy an existing building full of $750/month units, put in new countertops, and jack the rent up to $950/month when you can find actual new construction at a similar price point.

Good news for Minneapolis renters.

Hat tip to Alex Baca for bringing this story to our attention. 

  • Carter O’Brien

    I don’t doubt the parking adds to the cost, but from experience with my own rehab I suspect that with luxury housing the appliances, finishes and amenities like workout rooms, etc are at least as much of a factor. I’d love to see this more fleshed out.

  • FlamingoFresh

    Herein Chicago I don’t see the difference in rent prices from one building to another based off parking restriction. I feel like the bar for rent prices have been set that parking is only an additional cost outside of rent and not apart of it.

  • Adrian Horczak

    This must be why it keeps getting more expensive to live in NYC. The people in charge like to collect more money from rent, so the parking minimums aren’t going away here.

  • TakeFive

    If you are asserting that parking adds value to a unit which means they can get higher rents then OK. Otherwise landlord/owners will charge (in theory) whatever the market will bear and no less or more. There may be differences in philosophy like one landlord preferring stability of leases while another cares not.

    I hope what Minneapolis is experiencing spreads to Denver. Parking minimums aren’t the issue. Developers build more than the minimum requirement because that’s what their investors want.

  • Bernard Finucane

    It makes all kinds of sense to dig a hole in Minnesota. Surface parking seems nuts to me in a climate like that. Still, there’s no reason to have parking minimums.

  • When parking makes housing unaffordable for many, it starts to make sense to upgrade the finishes and amenities for a wealthier clientele.

  • TakeFive

    lol. I’ll have you know I just checked and Minneapolis has 196 days of sunshine.

    I happen to grow up one state south and in winter the snow is very dry and easy to push around. Now those spring snow storms are another matter.

  • neroden

    Meanwhile, in my semi-suburban area in upstate NY, the idiotic zoning code requires TWO parking spaces per unit. Seriously. With no decent public transportation, I could see one space per unit, but two is ridiculous.

  • neroden

    The assertion is simple: parking is very expensive to build. Landlords price on a cost-plus basis (yes, really, they do, like most businesses) and as a result if you require high costs (such as by requiring parking), they will charge high rents.

  • neroden

    The finishes cost nothing much by comparison — the parking costs far more. For my sins, I’ve done pricing on building construction stuff repeatedly: the great big concrete pours are the really expensive part. (And parking is particularly bad. Cars are heavy. And the cars drag in salt and stuff so it’s really hard on the concrete compared to the concrete concealed inside building walls.) If you have to throw a ton of money into concrete, it makes sense to throw a little more at the finishes.

  • neroden

    Chicago has some interesting situations which make things different. Near the Loop it seems to be common to be able to *rent your parking space*, so if your apartment comes with a parking space, you can rent it to someone else. It makes for a *very* different economic situation than in most cities where this does not happen.

    The decoupling of the parking space value means that it all equalizes out… an apartment with a rentable parking space will rent for more than one without one. But the net cost to the renter ends up being the same: if they have no car and rent an apartment with a space, they recover the rent from the space — if they have a car and rent an apartment without a space, they pay someone else to rent a space.

  • Jason

    The point is that parking is so expensive to build that it’s not being built as a value-add to lure in prospective tenants, it’s being built because they have to and then the costs are passed on directly to the tenants.

  • TakeFive

    Nope. I think you may be conflating project feasibility analysis with the market place rents once built.

    For example, if the project were to be marketed for sale, a subsequent buyer wants to know what the profit profile is based on current and/or projected rents. What was spent building the project is of little consequence. Buyers may choose to pay a location or amenity premium but that’s different.

  • TakeFive

    I accept that where parking minimums are included or higher than need be that your point is valid. But as I said in Denver they’ve lowered minimums to near nothing but developers build lots of parking anyway because that’s what investors and lenders want to play ball.

  • that_zoning guy

    As a planner in semi-suburban NC, we keep parking at 2 spaces per unit every where except downtown. It’s really not practical without some kind of public transportation or walkable/livable area immediate abutting the apartments. In the suburbs/side of the highway, cars a complete necessity for people, and, when parking is limited people end up parking in the driveways, the grass, the sidewalks, the neighbor’s house, etc. If anything, it’s more our fault for allowing developers to construct out in the middle of BFE, but, for a lot of City/Town councils, saying “no” is a fireable offense.

  • Nick Magrino

    “He’s seeing fewer downtown “luxury” buildings, with large platform garages on the lower floors, and more small, mid-rise buildings with some surface parking in the back and more affordable rents”

    Note about that–generally it’s not surface parking, it’s an enclosed parking area on the back of the building on the first floor. A couple have had small surface lots as well, but we try to discourage that.

  • Frank Kotter

    **so we got a lot of these six story, 200 unit l*x*ry boxes that everyone in $400,000 houses complain about in lieu of having a personality.**

    Snarky, but it’s good.

  • WalkerEvans

    Great article, Angie! 😉

    Columbus axed its Downtown parking requirements around a decade ago. Some developers continue to include at least a 1:1 (or more) ratio of units/parking citing market demand, but a few have gone lower. A five-story development completed last fall at 303 South Front Street includes 89 apartment units and only 35 parking garage spaces. And an 11-story building that has just broken ground at 255 South High Street will have 120 apartment units and a parking garage for 22 cars and 60 bikes upon completion.

    In terms of affordability, I don’t think the parking requirements have helped a whole lot in driving costs down. Demand still outweighs supply in Downtown Columbus, so developers continue to build luxury units and they continue to lease/sell quickly. Thankfully, there’s a bit of respite in nearby walkable neighborhoods that have more affordable existing housing options, so you don’t need to go very far to find that.

  • Michael Lewyn

    is there any actual data on Minneapolis rents or just anecdotal guesses?

  • Great article .. by the way surface parking lots are the worst of all in terms of livability: it kills the urban experience… I think all surface parking should be banned unless there are stores on the lot front.

  • rohmen

    Maybe Chicago is the exception to all of this, but our TOD buildings are very often the highest rent buildings, with an avoidance of parking costs seemingly not impacting price at all. Probably one issue is that outside of the Loop and West Loop, having any parking attached to a rental until is kinda rare, and itself becomes a sort of luxury amenity people pay extra for above the rent charged. I feel pretty safe saying almost all of the modern rentals here charge separately for parking, and while some of the cost still likely gets folded into rents, I can’t say that I see it driving up rental prices here. Minneapolis sounds like a different story.

  • Developers build more than the minimum requirement because that’s what their investors want.

    Yes, I’ve heard that investors are skittish about funding projects with little-to-no parking.

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