Academic journal article American Journal of Business Research

How Water Access Affects Housing Price in a Developing Country: A Hedonic Analysis

Academic journal article American Journal of Business Research

How Water Access Affects Housing Price in a Developing Country: A Hedonic Analysis

Article excerpt

ABSTRACT

This paper studied the relationship between housing prices and different kinds of water access. The model is implemented using household data from Southwestern Sri Lanka, comprising 1723 households in 17 sub-regions around the city of Colombo. Households in the study area obtain water from three sources: (a) public water sources (well or tap); (b) private wells; or (c) tap water access, where households pay a fee in exchange for a certain level of water service. Multicol linearity issue is addressed by estimating the effects of having a tap water connection in a house and the effects of water infrastructure availability separately. The results show that a private tap water connection is capitalized into higher house price and may impede efforts in poverty reduction vis-à-vis improved water infrastructure. In addition, private well is considered a worthy alternative to private tap, whenever the latter is not available. This study makes the following contributions. The hedonic framework provides a nonmarket valuation alternative to stated preference models commonly used in water research. In addition, the study can be used to help governments in cost-benefit analyses of investment in public infrastructures, in particular, tap water networks. Lastly, marginal willingness to pay for water access, based on estimated results, can be used to measure changes in household welfare via water access improvements.

Keywords: Water access, Housing market, Hedonic analysis, Developing country

(ProQuest: ... denotes formulae omitted.)

Introduction

Water is a basic necessity for all human beings; we use water for drinking, cooking, bathing, washing (dishes, clothes), and for many other purposes. Water that is used for drinking or cooking is preferably of a higher quality than the quality of the water used for hygiene and other purposes. In addition, different households may have different preferences in the quality of water demanded; e.g., one household might require a very high quality of water for drinking, while another household might be fine with drinking a lower quality of water.

In many countries, water is provided by government through a piped water network, where households have to pay a fee in exchange for a certain level of water service. However, in some regions, especially in developing countries, it is too costly to build these networks or to ensure that every household have access to the network. Households may also choose not to tap into the system and instead depend on other water sources such as public wells, public taps (shared access to water network) and private wells. However, water from public wells typically has a lower quality and it might not be potable. In addition, there may be significant transaction costs associated with carrying water to the house, as well as a congestion effect as more people use this water source. If a network does exist, access sometimes cannot be guaranteed to be available at all time or the quantity of water available to a household may be limited.

Building water network infrastructure in predominantly poor areas could benefit the poor in two ways. First, by improving general health (via improved water quality), it may lead to increased productivity and, more generally, improve the quality of life. Second, a water network reduces the transactions costs of accessing water (if the alternative is hauling water from a public well). These are two common justifications for public investment in water supply infrastructure (WHO/UNICEF, 2000). However, availability of water access through the network can lead to higher housing prices, to the extent that the benefits are capitalized into property values in the region. This paper investigates the social consequences of this prospect through a case study of three districts in Sri Lanka using a hedonic analysis, in which local provision of amenities, especially water access, is included. The hedonic model provides a simple, yet informative framework for analyzing the value of housing attributes embedded in house price, in this case especially neighborhood amenities. …

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