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

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  • Zhang, Fan
  • Polyakov, Maksym
  • Fogarty, James
  • Pannell, David

Abstract

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.

Suggested Citation

  • Zhang, Fan & Polyakov, Maksym & Fogarty, James & Pannell, David, 2016. "The Capitalized Value of Rainwater Tanks in the Property Market of Perth, Australia," Working Papers 246968, University of Western Australia, School of Agricultural and Resource Economics.
  • Handle: RePEc:ags:uwauwp:246968
    DOI: 10.22004/ag.econ.246968
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    File URL: https://ageconsearch.umn.edu/record/246968/files/SARE%20WP1613%20Zhang%20et%20al_%20Capitalized%20value%20of%20rainwater%20tanks.pdf
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    References listed on IDEAS

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    1. 305 – Feeling virtuous: what’s it worth?
      by David Pannell in Pannell Discussions on 2017-07-10 20:00:54

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