Mind the Tap: How Volumetric Pricing Affects Residential Hot Water Consumption

Water is an increasingly scarce resource. However, in many multifamily buildings, water is included in the rent, and tenants can consume an unlimited amount at a fixed cost, with no monetary incentives for saving water. Using high-frequency data over multiple years and a staggered implementation of apartment-level billing, we investigate the effects of volumetric pricing on hot water use. Our results show that individual billing decreases consumption by approximately 18%. The response is rather immediate and appears to be permanent. Additionally, estimated effects are remarkably homogeneous across different consumption quartiles, apartments with varying characteristics, and days of the week, and evenly distributed between bathroom and kitchen usage. Our cost-benefit analysis indicates that price interventions can cost-effectively reduce the consumption of hot water. Moreover, the effect of individual billing is of an order of magnitude higher than previously estimated effects of nonpecuniary incentives and providing more information about water consumption.