Hidden subsidies for cars

December 6, 2019

Personal vehicles are ubiquitous. They dominate cities. They are actually so entrenched that they can blend into the background, no longer rising to our attention. Having as many cars as we do can seem to be the ‘natural’ state of affairs.

Our level of car use could perhaps be called natural if it were the result of people’s preferences interacting in well-functioning markets. No reader of this blog, I take it, would believe such a claim. The negative externalities of cars are well-documented: pollution, congestion, noise, and so on.

The subsidies for cars are less obvious, but I think they’re also important.

In our relationship to cars in the urban environment, we’re almost like David Foster Wallace’s fish who asked ‘what the hell is water?’. I want to flip that perspective and point out some specific government policies that increase the number of cars in cities.

"Manhattan, 1964 by Evelyn Hofer"
“Manhattan, 1964” by Evelyn Hofer

Free or cheap street parking

Privately provided parking in highly desirable city centres can cost hundreds of dollars a month. But the government provides car storage on the side of the street for a fraction of that, often for free.1

The width of roads

Streets and sidewalks sit on large amounts of strategically placed land that is publicly owned. Most of that land is devoted to cars. On large thoroughfares, I’d guess cars take easily 70% of the space, leaving only thin slivers on each side for pedestrians.

This blogger estimates, apparently by eyeballing Google Maps, that streets take up 43% of the land in Washington DC, 25% in Paris, and 20% in Tokyo.

Space that is now used for parked cars or moving cars could be used, for example, by shops and restaurants, for bikeshare stations, to plant trees, for parklets, or even to add more housing. And if there was a market for this land I’m sure people would come up with many other clever uses.


Even if highways aren’t actually inside the city, they have important indirect effects on urban life. Whether the government pays for highways or train lines to connect cities to each other is a policy choice with clear effects on day to day life in the city, even for those who do not travel.

In the United States, this implicit subsidy for cars is large. According to the department of transportation, in 2018 $49 billion out of the department’s budget of $87 billion was spent on highways2.

In this post I don’t want to get into the very complicated question of how much governments should optimally spend on highways. For all I know the U.S. policy may be optimal. My point is only that any government spending on highways indirectly subsidises the presence of cars in cities. This is non-obvious and worth pointing out. When the government pays for a Metro in your city, the subsidy to Metros plain to see. Meanwhile, the subsidy to cars via a huge network of roads across the country passes unnoticed by many.

To be fair, in the United States federal spending on highways is largely financed by taxes on taxes on vehicle fuel. So it’s not clear whether federal highways policy is a net subsidy to cars. However, the way highway spending is financed varies by country. For example, in Germany, “federal highways are funded by the federation through a combination of general revenue and receipts from tolls imposed on truck traffic”.

Minimum parking requirements

Many zoning codes require new buildings to include some fixed number of off-street parking spaces. This isn’t as much of a problem in the European cities I’m familiar with, but in the US, parking minimums are far beyond what the market would provide, and are a significant cost to developers. One paper estimated that the cost of parking in Los Angeles increases the cost of office space by 27-67%3.

Suburban sprawl

United States built sprawling suburbs in the postwar period. I still remember the famous aerial view of Levittown, the prototypical prefabricated suburb, from my middle school history book.

The growth of suburbia was aided by specific government policies that tipped the scales in favour of individual homes in the suburbs, and against apartments in cities. The growth of suburbia led to more cars in the city, because people who live in suburbs are much more likely to drive to work.

Devon Zuegel has an excellent exposition of how federal mortgage insurance subsidized suburbia4:

[The federal housing administration] provides insurance on mortgages that meet certain criteria, repaying the principal to lenders if borrowers default. […] Mortgages had to meet an opinionated set of criteria to qualify for the federal insurance. […] The ideal house had “sunshine, ventilation, scenic outlook, privacy, and safety”, and “effective landscaping and gardening” added to its worth. The guide recommended that houses should be set back at least 15 feet from the road, and well-tended lawns that matched the neighbors’ yards helped the rating. […] [The FHA manual] prescribed minimum street widths and other specific measurements.

The federal government was effectively prescribing how millions of Americans should live, down to their landscaping and gardening! I wonder if Khrushchev brought up this interesting fact about American life in his conversations with Eisenhower. ;)

Further reading

  • A study from the Canadian Victoria Tansport Policy Institute, Transportation Land Valuation
  • Anything by Donald Shoup, an economist and urban planner
  • Some cool colour-coded mapsof U.S. cities, showing the surface area devoted to surface parking, above-ground parking garages, and park space.
  • Barcelona’s superblocks
  1. If you want more on this topic, economist and urban planner Donald Shoup has a 733-page tome called The High Cost of Free Parking

  2. See the supporting summary table on page 82 of this document. The sum of spending for the Federal Highway Administration, the Federal Motor Carrier Safety Administration, and the National Traffic Safety Administration comes to $49 billion. Thanks to Devin Jacob for the pointer. 

  3. Shoup 1999, The trouble with minimum parking requirements, in section 3.1, estimates that parking requirements in Los Angeles increase the cost of office space by 27% for aboveground parking, and 67% for underground parking. 

  4. Devon wrote a two-part series: Part 1, quoted above, deals with federal mortgage policy, and lays out a convincing case that it included large implicit subsidies. Part 2 is about “how suburban sprawl gets special treatment in our tax code”. It shows that owning and building homes is heavily subsidized, for example by the gargantuan mortgage interest deduction. I agree that this means people are encouraged to consume more housing, but I don’t see how it differentially encourages suburban housing. Devon quotes economist Edward Glaeser, who says that

    More than 85 percent of people in detached homes are owner-occupiers, in part because renting leads to home depreciation. More than 85 percent of people in larger buildings rent. Since ownership and structure type are closely connected, subsidizing homeownership encourages people to leave urban high-rises and move into suburban homes.

    So the key link in the argument is the connection between ownership and structure type. I’d like to see it spelled out and sourced better. Could the observed correlation just be due to a selection effect? If there’s a true causal effect, do large buildings have more renters because it’s genuinely more efficient that way, or is there some some market failure that prevents people from being apartment-owners in the city? 

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