In many states and local jurisdictions, utility regulations prevent apartment owners and managers from charging residents directly for their water usage. Instead, the property's water and sewer costs must be recouped through the rent. One important consideration in weighing the regulatory options for water is the amount of water likely to be saved if apartment residents are separately charged based on their water consumption, rather than through a fixed increment to rent that varies little, if at all, with the individual resident's water usage. While the literature on residential water demand is substantial, little of it is directly applicable to this question.
This paper reports results of research to project the likely water savings per apartment and in the aggregate when apartment residents go from paying zero marginal price for water to paying market rates based on their personal usage. Using household data from the 1995 American Housing Survey and water/sewer pricing information for 57 local jurisdictions nationwide, the research first specifies models of residential water consumption and estimates the models using data on homeowner households in the AHS who pay separately for their water sewer usage. The models' calibration is then applied to apartment residents to project their water usage under different pricing schemes, controlling for differences in the demographic characteristics and geographic locations of homeowner and apartment renter households. Finally, the paper relates the findings to previous research and current regulatory policy.