I absolutely love the idea of demand based pricing for parking, and it looks like San Francisco has officially kicked off their pilot program.

The basic assumption is this: if you’re driving a car in a city, you want to be able to pull over and grab a parking spot without hunting around. In a practical sense that probably means you want about one or two free parking spots every block (80% utilization). How do you do that? You price it right. If you have a block with no free parking spots, then obviously demand is far outstripping supply, so you need to up the price. Conversely, if you have a block with too many free parking spot, you need to drop the price.

The benefits to this are enormous. If you think about it long enough, you realize that having 80% utilization actually maximizes the amount of cars stopping at each block. The obviously corollary is that this is good for commerce. You see, if the price of parking is too high, and parking spaces are underutilized, then you’re obviously not getting as many car-based shoppers as you could. But, the reverse is also true: if you price too low, you’ve filled up all the spot and many car-based shoppers had to divert elsewhere. You lost customers.

Another, less obvious benefit, is that you actually reduce traffic. In cases where there isn’t enough available parking, drivers add time (and distance circling) to their trip in order to hunt for parking spaces. If you have a parking space immediately available, you reduce the driving time and distance of the average car, and therefore reduce traffic.

Since the idea is that the pricing is variable throughout the day, as well as in the long term, in some ways it hard to imagine how the idea could fail. What would would a failure even look like? By definition the pricing is set to always keep a few free parking spaces.

I think that my source for all of this is Donald Shoup, I read some stuff last year in detail, but I’ll have to dig up a link later.