Monday, May 08, 2006

Manhattan Gasoline

Washington Post:
"Gas stations are an endangered species in Manhattan, shoved aside by luxury developments and spiraling commercial rents. A cluster of stations sit on prime real estate that has already been rezoned from industrial to residential.

In the past few months, at least four stations have been shuttered. That means there are no more than 54 stations left to service the estimated 830,000 cars, delivery trucks and various other gas-consuming vehicles that crawl through Manhattan's urban canyons each day. It's come to the point that the city's Planning Department is examining strategies to keep the remaining stations in business.

'I don't think they will disappear completely, but I don't see stations being built because of the expense,' said Ralph Bombardiere, executive director of the New York State Association of Service Stations and Repair Shops. 'I don't see anyone putting that kind of investment in it.'

The numbers tend to bear this out. The island is 23.7 square miles of real estate, home to about 1.5 million people. Add to that the tens of thousands of daily commuters, and land in Manhattan becomes what water is to Los Angeles: precious regardless of looks, smell or location.

Scarcity explains, in small part, the borough's astronomical gas prices, says Bombardiere. Fewer stations equals less competition."
Now there's some solid economics: fewer stations equals less competition. But I suppose there is a bigger picture. That is, the fewer stations are the result of ever greater competition for parcels of land.

The article seems to suggest that over time there are fewer and fewer gas stations because there are different economic uses for the land the gas stations now sit on that are willing to bid far greater values for the land than are the gas stations. The story also suggests that government is considering whether to adopt some policies to "correct" the situation:

The city's Planning Department, which makes recommendations for rezoning and tracks demographic shifts, plans to examine strategies for preserving critical services, such as gas stations, in Manhattan, according to Rachaele Raynoff, a department spokeswoman. One option is to provide special zoning protection to gas stations, repair shops and other industrial-age service centers.

Might New York one day protect gas stations because they provide a public service?

Cornelius Burns thinks so. "You absolutely need gas stations," he says. "You would need to do something to protect it."

I'm not sure this makes much economic sense. It seems to me we can't really expect the dynamic adjustments of this urban economy to be characterized by any source of market failure. I also suspect that using some "special zoning protection" will itself introduce inefficiency into the location of economic activities within this urban area. Am I missing something here?

I suppose some may think it is obvious that "you absolutely need gas stations," but perhaps that is not really the most significant concern. Imagine what the price of a gallon of gas might have to be in order for a gas station to be able to out bid the other potential economic uses of the land.

Oh, and I shouldn't forget to point out that we learn from this news story that big oil wins again:
"The winners often turn out to be the oil companies, said Bombardiere, of the gas station association. They typically own the land and set the gas prices. And when they're ready to sell, the companies reap the rewards."
I suggest it doesn't really matter who owns the land. As this urban area continues to grow and prosper and increase in density, the competition for parcels of land will continue to grow and bid up the amounts economic activities will pay for land. Those who own the land now will be the people who benefit from the increasing scarcity values of the land, regardless of the economic nature of the owner.

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