Investigating the impacts of drinking water quality on house prices: A household production function approach

Abstract

Water provides many important, and some essential, services. The quality of the piped water entering a household impacts the value generated by these services. Household response options include treating the piped water, using water from an alternative source, and selecting a community with different piped water quality. This intersection between location choice and community piped water quality may manifest as a house price effect. We adapt a residential sorting model to identify variables that characterize the relationship between piped water quality and house price. Many studies explore the impact of locational and structural attributes on house prices but very few include piped water quality. In our model, households in a given community produce water services using piped water, materials and capital or purchase water from an alternate source. A housing rental price equilibrium emerges after households sort themselves among communities varying in piped water quality and alternate source water cost. The presence, direction and size of the relationship between house price and community piped water quality depends on that piped water quality, the cost of treating it, and the quality and cost of substitutes. Absent accounting for these community level characteristics, both measuring and interpreting a relationship between property prices and piped water quality will be questionable. Our model results also suggest that if households know their piped water quality and can afford to invest in treatment or purchase of the substitute, they may adequately avert the impacts of poor quality piped water.