Water demand and the urban poor. A study of the factors influencing water consumption among housholds in Cape Town, South Africa

Abstract

Water demand management is a key focus area for most water managers and even more so in developing countries. Improved access to water is important to the poor. Water scarcity makes efficient management even more urgent and it creates more conflicts in water distribution. Different policies have been introduced to ensure a water management system that cares for the poor, among them the Increasing Block Tariff (IBT) structure. Studies demonstrate that it is very important to know the shape of the demand curve when deciding on the IBT structure. This is particularly so when it comes to supplying water to the poor. The purpose of this paper is to provide a greater understanding of the factors that influence water consumption. It also aims to provide an estimate for the price elasticity of water demand, using data obtained from households living on the Cape Flats in the Western Cape Province, South Africa. The data covers a period of up to 60 months from July 1998 to June 2003. Water consumption data was obtained from the local government, the City of Cape Town (CCT) and a survey study in five suburbs of the area. A panel data analysis (correcting for heteroscedasticity and serial correlation) demonstrates how different factors influence water consumption, among them the price of water. We find that consumption is insensitive to price changes among the poor, while the richest group of households react to price changes much more. We also find that using actual prices in the estimation does not address the simultaneity in the data and we therefore apply a 2SLS analysis in our model. Our results reflect a negative price elasticity of demand for water in the short run. A key finding results from splitting the data into different income groups. We find a price elasticity for water demand of only –0.23 for the lowest-income group, whereas the high-income group has a price elasticity of -0.99. The results may add to the knowledge needed to improve an IBT structure to achieve greater equity.