One of the most common concerns developers have is the cost of parking. Constructing underground parking spaces in new rental buildings costs between $20,000 to $50,000 per space. That’s a big range. I have no way of narrowing down that range myself, or even checking its basic accuracy since it’s based on estimates I’ve been told by various people in the industry. The key point to understand is that underground parking spaces are expensive to include in new rental buildings.
In a new condominium building the developer can charge buyers a price per parking space and get back the construction cost, or most of it. In a new rental building, however, a developer can only charge tenants a monthly fee, usually around $75 or $100 a month, or around $200 per month in Toronto’s core, which means it takes a long time to get back the construction cost. With this is in mind, it’s natural that rental housing developers want to minimize or even eliminate underground parking whenever possible. In downtown Toronto this is usually achievable since it isn’t necessary for renters to own personal vehicles since most can use the TTC subway or streetcars or walk. Everywhere else, though, owning a personal vehicle is pretty much unavoidable (in suburban areas of the GTA renters might be able to commute to work using public transit or conduct their private lives using public transit, but rarely both). This means developers can make a good argument for minimizing or even eliminating parking in downtown buildings, but not in suburban areas of the GTA, nor in other cities and towns in southern Ontario, most of which have much less public transit coverage than Toronto or none at all.
The question to answer, then, is what parking coverage should be provided in a new rental building?
I think the best rule of thumb, at least as a starting point for discussion and negotiation, is to provide one parking space for every 1 bed unit and two parking spaces for every 2 bed and 3 bed unit. Studio and bachelor units, which cater to price-sensitive renters, should be provided zero parking spaces (except in areas where no public transit exists, such as small towns). I think in urban cores a developer could get away with providing zero parking spaces for 1 bed units and only one space for 2 bed and 3 bed units. I think in suburban and small town areas, especially those without meaningful public transit, a developer should provide parking spaces for all units. The table below suggests a hypothetical typology for parking coverage in new rental buildings, based on the discussion above.
Does this hypothetical typology make sense? Every geography and host city is different, and every development site is different, so there are no definitively right or wrong answers here, only better answers (or solutions). But I think it’s fair to say that developers can’t avoid providing a high parking coverage no matter where in southern Ontario their building is going to be located—downtown Toronto is pretty much the only exception. In fact, most municipalities, which control parking requirements through zoning bylaws, will dictate parking coverage, often higher than most developers want. Developers can make a case to municipalities for reduced parking coverage and sometimes succeed, but is this always a good idea? New rental buildings charge high rents and are usually rented by people who have high incomes and who can afford cars even if they don’t use them for every trip. For many people higher on the income ladder, owning a car is a lifestyle choice not dictated by economics. This means that among people with higher incomes vehicles are often owned whether they are needed or not, and are kept long after they are needed—it’s about want, not need. For developers, this means that in new, upscale, ‘high rent’ rental buildings significant amounts of parking must be provided.
Think about it this way: Let’s say you’re a developer who is proposing to construct a new, upmarket rental tower in a suburban location which is near a city bus route and has plazas nearby. You’ve managed, through the development approval process, to get your required parking coverage reduced to one parking space per residential unit from the zoning requirement of one parking space for every 1 bed unit and two parking spaces for every 2 bed unit. This means the 1 bed units in your proposed building will get one parking space each, but it also means the 2 bed units get one parking space too. By eliminating a second parking space in the 2 beds you’ve avoided paying tens of thousands of dollars to construct each of those second parking spaces, perhaps eliminating another level to your underground parking, which is a huge savings. Once construction is underway and you’re a few months away from getting your occupancy permit, you start leasing units. You’ve constructed an upmarket building with attractive amenities and the location is good, so you can charge high rents. Prospects start contacting your leasing staff and very quickly you learn that most renters who are interested in the 2 bed units want to rent two parking spaces. Your leasing staff has to explain to prospects that they can have only one space; some are okay with that, but most aren’t and decide to looking elsewhere. What now? You could re-allocate some of the 1 bed parking spaces, hoping that a certain portion of prospects looking for a 1 bed unit won’t need parking. You could arrange to rent parking spaces in local parking garages or other buildings to re-rent to prospects, although this means they have to walk some distance to their cars. You could try to get the municipality to agree to let you convert your visitor parking spaces to residential parking spaces. You could also… Well, the point is you’ve got a real challenge on your hands in this situation.
To be frank, you might get away with minimal parking since there’s such a shortage of new, high quality purpose-built rental housing in most cities and towns in southern Ontario that you will probably be able to fully lease your units at the rents you want, even if you don’t provide all the parking that most prospects want. But down the road, when you want to sell your building, or when another developer constructs a couple of new rental buildings nearby, your building, with its minimal parking coverage, might not be as attractive to prospective renters (if the new buildings nearby offer more parking) or to prospective institutional buyers (who will have to lease units as they turn over, well into the future, and therefore want their assets to have the maximum possible long-term competitiveness).
I realize the bottom line is the only line that matters when developing new rental buildings, but the lesson here is that developers shouldn’t look at parking as only a cost to be minimized or eliminated—parking is an important component of leasing and the value proposition offered to renters.