Wednesday, 10 July 2013

The marginal benefit of using land for car parking spaces or for housing

As I've pointed out before, there is a trade-off between using land in an urban area for housing/buildings and using it for parking spaces.

It would be stupid to demolish every single building and replace them with a massive car park; it would be equally stupid to build housing/commercial premises on the last few car parks. There is simply an optimum ratio between the two, so near the shops/places of work up to half the available area will be car parks, with a much lower amount in residential areas, depending how densely built the housing is etc.

I've done the numbers, and expressed per square yard per year, the rental income you can get from a car park where I live is roughly the same as the income from housing or from retail premises.

Clearly, if there is under-provision of car parks, this pushes up the potential rental income from parking spaces and it will make commercial sense to knock down a building on a large plot and use it for parking, and vice versa. This dynamic process ensures that there is an equilibrium between the two and we would expect to occasionally see a car park being built on and occasionally a building being knocked down.

I'm therefore happy to report that - proving my point - in last couple of months, a large local employer (who has lots of employees and visitors and appears to be open pretty much 24/7) acquired a smallish house on a largish plot right next door and knocked it down to create an extra dozen parking spaces. Instead of collecting £24,000 rent from the house (it's an expensive area!) the employer values each space at £2,000 a year = £5 or £6 per day (which might be two or three employees working shifts, or half a dozen visitors per day, or whatever).

This all makes life much easier when it comes to doing assessment for land value tax purposes. In the instant case, the tax liability on that plot wouldn't actually change simply because the little house was replaced with parking spaces - the rental value is clearly much the same before and after. (Theoretically, it's slightly higher afterwards but not that much higher, or else this would have happened years ago).


Sarton Bander said...

I'd get with using the term low-affordability area over expensive area.

Mark Wadsworth said...

SB, that's a nice idea, but clearly it is not unaffordable for the people who live there.

So the LVT would not be unaffordable either, boom boom!

Morgan Charles said...

Can't see the problem about building over car parks, so long as the car park remains under the building. Wouldn't that be the optimum use of space - ground floor cars, first and higher floors, offices or residential?
I used to work in an office in London that was arranged like this. It also had another space-saving idea I've not seen elsewhere: everyone parked bumper to bumper in double rows with the brakes off and the steering wheel locked straight ahead. To get a car out from the middle, you just moved moved the cars in front and away a bit, extracted the car and then moved them back.

Mark Wadsworth said...

MC, as we well know there is a close correlation between location values, population density and build density.

But build costs are fairly fixed. So in my area, the land which was bought for parking costs about £1,000 per sq yd. It also costs (say) £1,000 per square yard to build an underground car park.

So they are indifferent whether they hollow out a car park under their existing plot or just buy the land next door, it costs the same.

If and when they find they need more internal space, they will probably do the sensible thing and build OVER the car park, because that costs say £800 per square yard to build and there is no extra cost for the land; once they start building upwards, there is no natural limit apart from planning regulations...

... and the fact that each higher storey costs a bit more than the one below it. So it's worth building first floor for £800, it's worth building second floor for £850, it;s worth building third floor for £900, but once they get high enough, it's cheaper buying more land for £1,000 and starting again.

The only noteable underground car park in my suburb is right in the middle under the supermarket, where the land costs (say) £2,000 per square yard, that makes it commercially sensible to dig down and build up.