The Capitalized Value of Rainwater Tanks in the Property Market of Perth, Australia

In response to frequent water shortages, governments in Australia have encouraged home owners to install rainwater tanks, often by provision of partial funding for their installation. A simple investment analysis suggests that the net private benefits of rainwater tanks are negative, potentially providing justification for funding support for tank installation if it results in sufficiently large public benefits. However, using a hedonic price analysis we estimate that there is a premium built into the sale prices of houses with tanks installed, and that the magnitude of the premium is likely to be greater than the costs of installation, even allowing for the cost of time that home owners must devote to research, purchase and installation. The premium is likely to reflect non-financial as well as financial benefits from installation. The robustness of our estimated premium is investigated using both bounded regression analysis and simulation methods and the result is found to be highly robust. The policy implication is that governments should not rely on payments to encourage installation of rainwater tanks, but instead should use information provision as their main mechanism for promoting uptake. Several explanations for the observation that many home owners are apparently leaving benefits on the table are canvased, but no fully satisfactory explanation is identified.


Issue Date:
Oct 26 2016
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/246968
Total Pages:
24
JEL Codes:
Q25; Q51; R30
Note:
This work has been published in the Journal of Hydrology. A pre-print version is available at http://dx.doi.org/10.1016/j.jhydrol.2014.12.048 Please cite the article version of this work as: Zhang, F., Polyakov, M., Fogarty, J. and Pannell, D.J. (2015) The capitalized value of rainwater tanks in the property market of Perth, Australia. Journal of Hydrology, 522:317-325.
Series Statement:
Working papers
1613




 Record created 2017-04-01, last modified 2017-05-27

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