I don't think it will exacerbate a parking shortage in any area. If you have a parking permit now you can park in any permit parking, or any non-permit parking. If you don't have a permit now you can only park in non-permit parking. So if you make the whole city permit parking it reduces the number of cars that can park in that area, actually alleviating a problem.

OTOH there are a number of problems with this proposal, such as the inability to allow people to park for more than 2 hours even if they pay to do so (for example to see a movie or a show) and the lack of flexibility in general. So while I think it might help me, with my permit, park for free, I still think it needs some work. If redone well I think it would actually make the City more money, not less.