How New York will improve its on-street parking
My latest video, above, is a reprisal of my blog post about variable pricing, and why it’s a great thing. The insight here is that pricing for a product like Broadway tickets is not the zero-sum game that it might seem at first glance. Yes, the more money that theatergoers spend, the less money they’re left with, and the more cash flowing into the pockets of New York’s performers and producers. (Which, incidentally, is quite the racket: one day I want to write a post about how theater producers get to effectively charge their investors 4-and-50, way more than the 2-and-20 we see in the finance world.)
But if you look beyond that initial dynamic, there’s much more going on here. By perfecting the art of variable pricing, Broadway manages to minimize the number of ticket scalpers, and therefore keep more money in its ecosystem. It manages to sell out every show, which just feels great. And it a means that there’s nearly always a ticket available for any show you want to see. That convenience alone is worth a lot.
The masters of variable pricing, of course, are the airlines, and while people are often resentful that they paid five times more for their ticket than the person sitting next to them did, the fact is that they would be much more resentful if they regularly tried to buy air tickets and found that all the flights were sold out. And conversely, of course, the airlines would lose even more money if they regularly wound up flying half-empty planes. Without variable pricing, one or the other would certainly happen.
In New York, as we’ve seen, Broadway is great at variable pricing, while the Yankees and the Metropolitan Opera are still in the pricing dark ages. But there’s one much more important area of New York life which is in desperate need of variable pricing: on-street parking.
San Francisco recently introduced variable pricing for on-street parking, and it’s an idea which ought to have been implemented in New York years ago. The basic idea is incredibly simple: you just price parking meters so that there’s always one empty parking spot on every block. The effect is electric, for two reasons. Firstly, drivers no longer have to pad their journeys by some unknowable amount of time to account for the time spent looking for a spot. And secondly, the whole city speeds up, since a huge proportion of congestion is caused by cars driving around in circles, looking for one of those precious spots.
Which brings me to Matt Taibbi’s latest tirade, complaining about the idea that New York could raise as much as $11 billion by selling off its parking-meter rights. Anybody who wins this contract will have a contractual obligation to implement smart variable-pricing technologies, which will have to include apps showing where the spots are, the ability to pay by phone, and other ways of making everybody’s life easier. How is this not a good thing? Well, Taibbi’s upset that prices will rise:
Meter rates in some New York neighborhoods are already at $5 an hour. A Chicago-style price hike for fat-cat investors might leave us paying thirty bucks an hour to oil barons in Qatar and Saudi Arabia in order to park for dinner in the West Village.
I hate to break this to Matt, but has he seen the pricing at New York’s garages recently? Drivers would kill for the opportunity to pay $5 an hour. Matt lives in
Westchester Jersey and therefore doesn’t pay New York City taxes, but he still seems to think that New York City should subsidize the cost of his jaunts in to the West Village for dinner. But even if Matt were somehow deserving of such a subsidy, which he isn’t, it’s a false economy: it might feel good to be able park for cheap, but it feels much worse to be stuck in traffic all the time. And the overwhelming majority of West Village diners manage to find a way of eating there which doesn’t involve a parking spot. Why should they subsidize Matt’s parasitical suburban lifestyle?
New York is not Chicago, where the mayor was forced to give up all control of the parking meters in order that prices might be able to rise to their optimal level. Instead, the city will retain control of pricing philosophy, holidays, and the like, while also receiving an enormous check.
A huge amount of good could be done with that $11 billion, both in the West Village and in the rest of New York. Even Matt, if he puts his mind to it, could probably think of quite a few areas where New York needs to beef up its infrastructure, both in terms of transportation and in terms of everything else. These are investments, which will pay off over the long term, and the rate of return on these investments is almost certainly going to be higher than the discount rate which the private sector is willing to pay right now for parking-meter revenues.
The fact is that right now is the best possible time for New York to sell off its parking meters. Matt says, with no backing whatsoever, that the meters will be sold “at a steep discount”, and that New York will only get “pennies on the dollar”. The truth of the matter is much more likely to be exactly the other way around: that by doing the deal now, when interest rates are at all-time lows, New York will be able to capture an impressive premium for these future revenues — while at the same time outsourcing all of the risks and difficulties associated with bringing parking meters into the 21st Century.
It’s not easy for New York City to borrow money, for various reasons. The city should be borrowing and investing right now, for all the same reasons that we need a second stimulus nationally. You don’t want to invest during a boom, because that’s expensive and pro-cyclical. You want to invest when interest rates are low and labor is more readily available. And by selling off its parking meters now, New York will have access to billions of dollars at extremely low interest rates.
If those oil barons in Qatar and Saudi Arabia are willing to send $11 billion to New York in return for future parking-meter revenues, I’d be inclined to take their offer with no little alacrity. $11 billion, if you do the math, works out at more than $120,000 per meter. Taibbi really thinks that’s a discount to the meter’s real value? How much would he pay for a parking meter?
The fact is that New York, like most cities, is bad at monetizing the value of its on-street parking. This deal gives the city the opportunity to change that, and at the same time to introduce technology which could reduce congestion substantially, while also raising billions of dollars for investment in the city’s future. It’s a win-win-win. Except, maybe, for commuters in
Update: Matt responds, explaining that he actually lives in Jersey, not in Westchester. Sorry. He also says:
If prices do rise, some conglomerate of private investors, and not the citizens of New York, will see the benefit. The city might get $11 billion in the deal, but if that’s even a dime less than the real present value of these parking meters (to say nothing of the actual amount of revenue that will be collected over the life of this arrangement), then to me that’s bad and shortsighted public policy.
By this logic, then if $11 billion is a dime more than the real present value of the parking meters, then the privatization would be a good idea. And with interest rates where they are, and the way that cities are evolving, I’d guess that the present value of New York’s parking meters is more likely to fall from $11 billion than it is to rise.