Conference Agenda

This paper examines the effects of local water scarcity management on housing markets, water use, and welfare in Colorado. Rising costs of securing water for new developments have led water utilities to raise the water impact fees (WIFs) that home builders pay to connect new units to the water system, and to adopt variable WIFs based on expected water use. Using a novel dataset on water utility policies, housing outcomes, and aerial imagery with a staggered difference-in-differences approach, I find that variable WIFs reduce new single-family lot sizes by 15% and irrigated areas by 30%, decreasing household water use by 15%. I also find that WIFs are fully capitalized into house prices. To estimate the effect on total water use, housing supply, and welfare, I develop and estimate an equilibrium model of new single-family housing where landowners endogenously choose the lot size and irrigated area of new housing. I estimate that variable pricing policies have increased welfare by $120 million and consumer surplus by $3,500 per household. However, even though metropolitan-area level water use declines, changes to housing supply cause a local rebound effect that increases utility-level water use among adopting providers by 3%. In contrast, counterfactual policies that cap irrigated areas lower utility-level water use among adopters by 8%, but have limited welfare effects.