The Determinants of Household Water Demand: A Focus on Water, Energy, and Food Prices

A good understanding of the factors that influence household water demand is required to assist policymakers in implementing appropriate policy instruments that lead to sustainable municipal water use and ensure water security. This paper analyzes the factors affecting household water demand in South Africa to develop a better understanding of residential water demand in developing country contexts. The predominant focus in both the developed and developing country literature has been on determining the water price elasticity of household water demand. In terms of the price impacts on water demand in developing countries, and for poor households elsewhere, it is not only the impact of water price which affects household water demand. Given the low average incomes of these households, they usually spend most of their income on basic needs such as water, energy, and food. A water-energy-food price and consumption nexus thus exists for these households. In this paper, we examine this nexus by determining how changes in the prices of water, energy, and food affect household water consumption. Using three months of data from 527 households in the Mpumalanga province of South Africa, we estimate household water demand using ordinary least squares regression and two-stage least squares regression techniques with the use of instrumental variables. The results reveal that water, food, and energy prices have a significant negative effect on household water consumption. The tap water, food, and energy price elasticities ranged from -0.543 to -0.935, -0.174 to -0.403, and -0.072 to -0.163, respectively. This shows that policies aiming to alter water demand and improve water security for low-income households should not only focus on water prices but also the price of food and energy.