Submetering of Multi-Family Residential Properties (2005)

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Submetering: An Effective Way to Conserve Water?


Water consumption is usually master-metered in multifamily (MF) settings, with rent serving as the vehicle through which these and possibly other operational costs are transferred to the occupant, most of whom are renters. The expense and administrative burden imposed by submetering has traditionally been considered too great relative to benefits to make it a worthwhile proposition. Many assert, however, that absence of submeters leads to significant water wastage since renters remain shielded from the economic consequences of their water-use decisions, and that this wastage is difficult to tolerate in an era of increasingly constrained supplies. While logical enough, this assertion represents only one side of the coin. A MF complex’s total consumption is driven by decisions taken by both renters and owners. After all, a renter may decide how long to shower, but it is the owner that decides whether or not to install a low-flow showerhead. It is the owner’s responsibility to ensure that plumbing fixtures remain in good working order, and that the inventory of these fixtures is steadily upgraded in a way that favors newer water-efficient technologies. Thus, while submetering would help in sending clear price signals to renters, it also would simultaneously weaken price signals received by owners. Or, in other words, it would switch incentives embedded in a master metered system.

How should we choose between these two billing options? How can we align renters’ and owners’ incentives such that together they take decisions that promote water-use efficiency? These are some of the questions that animate the discussion presented in this paper.

In some ways, the choice boils down to knowing whether the owner or the renter is more responsive to price. If price responsiveness (what economists call price elasticity) of the two actors differs considerably, then sending clear price signals to the more responsive actor ought to be preferred since that would reduce wastage the most. But if the two actors exhibit comparable levels of price responsiveness, then the choice is not so clear: In such a case, sending price signals to both actors instead of just one ought to produce better results in principle, assuming a simple enough system could be devised in practice to achieve this goal.

It is worth mentioning that several variants already exist for sending price signals to MF occupants. Complete submetering of each apartment is the most advanced method. Another, possibly cheaper, option includes submetering only of hot water consumption (or point-of use submetering when supply lines crisscross across units), which can then be used to proportionally divide a complex’s total water bill across units. Finally, each unit can be billed on the basis of formulas, instead of measured in-unit consumption. The formulas can be simple or complicated, with the latter taking into account several factors, such as the number of occupants in a unit, type of fixtures in the unit, floor area of the unit, and so on. These formula-based bill allocation systems are generically called ratio utility billing systems (RUBS). When comparing the two approaches, it is obvious that complete submetering ties behavior to its economic consequences most directly, while RUBS do so only indirectly. 

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