Oct 11, 2022 - Business

Secret parking minimums are driving up development costs

Illustration of a fleet of cars on a hundred dollar bill with Benjamin Franklin's eyes peering through.

Illustration: Aïda Amer/Axios

While the city considers dramatically rolling back parking requirements to encourage denser, walkable neighborhoods, an unseen force is still quietly demanding developers build big parking decks.

  • Banks.

What's happening: In exchange for agreeing to finance an apartment project, banks almost always require developers to build a minimum number of parking spaces — often well above the requirements set by the city, developers say.

Why it matters: The requirements drive up the cost of building apartments in urban environments and, in turn, require developers to charge higher rents.

  • "Parking requirements are an enemy of affordable housing," Tom Papa of Fountain Head Properties tells Axios.

Details: It can easily cost upwards of $35,000 per space to construct parking decks, Papa says.

  • But the monthly fees tenants are willing to pay for parking in a market like Richmond — usually between $75 and $150 for a dedicated space — don't even come close to covering the construction costs.

Banks typically require at least one parking space per unit, according to Papa and Brian White, a developer with Historic Housing.

  • Meanwhile, the city recently slashed parking requirements along much of West Broad Street, where new Transit Oriented Development zoning has been put in place.
  • Developers are no longer required to offer any dedicated parking if their building contains fewer than 17 units. For larger developments, they only have to provide one space for every two units.

Threat level: Papa said parking requirements pose the biggest barrier to affordable housing developments, where margins are tight and the pressure to keep building costs under control is most intense.

  • But he said he's also concerned parking minimums that make sense today will prove to be a financial albatross for developments 10 years down the road as Richmond changes.

The other side: Banks review parking and other building details before financing a project because they want to be confident they're making a good investment.

  • "A reputation that it's hard to park here — particularly with online reviews — that can stick," Art Bowen, who oversees loans for rental housing at Virginia Housing, tells Axios.

What's next: Virginia Housing is a state authority charged, in part, with helping fund affordable housing developments, and Bowen says they're increasingly open to reconsidering how much parking to require for urban developments.

  • He said many young renters today haven't made car ownership a priority as on-demand services like Uber and GrubHub have proliferated.
  • "It's a lot more situational than it used to be," he says.

Worth noting: Developers of market rate housing say it’s not as big of an issue. And sometimes, they say the banks are right.

  • When they were developing Scott’s View, White says Historic Housing’s lender required the company to build a larger parking deck than called for by city planners.
  • It’s usually full, he says. “I think the banks have read the market appropriately. I wish that it weren’t that way, but it is.”

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