I saw a TikTok today that I think points to a super common misunderstanding about how development works:

The TikToker was saying that removing parking won’t lower rents, because developers will just pocket the money they save by not building parking.

In reality, removing parking requirements can lead to lower rents in part BECAUSE developers can make extra profits. Let me explain.

There are three or four main mechanisms by which removing parking can lower rent.

The first is that removing parking requirements makes it possible for smaller lots that are too small to fit a parking garage to be developed. These will often get built by mom-and-pop developers who have less overhead, and, 1) the entry of new, smaller developers into the market plus 2) the increase in developable lots, results in more homes getting built, which increases supply.

The second is that removing parking requirements allows for more apartments to be built on any one piece of land in the same amount of space. Again, more homes get built -> supply increases -> rents go down

The third is that there is an expectation from a lot of renters that buildings will provide parking. So fewer renters are going to be interested in a building that doesn’t have parking, and a building without parking is going to need to have lower rents than one with parking.

Finally, we come to the fourth reason, which points to the misunderstanding from the TikTok. When cities require parking to be built, that parking acts as a “price floor” for new apartments.

Apartments will only get built if developers can make enough profit to cover the costs to build and to provide a large enough return to their investors, who could choose to invest in something else instead.

If a project won’t be profitable enough at rents it would be able to get, it won’t get built.

By lowering the costs to build and allowing developers to pocket the savings, removing parking requirements makes it possible for developers to make more profits for projects that would get lower rents. So now, those projects with lower rents get built when they wouldn’t have gotten built before.