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

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. Multicollinearity 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