Estimating the willingness to pay for Warmer and Drier Homes

ABSTRACT

New Zealand is one of several countries to use subsidies for retrofitting insulation and installing improved heating devices such as heat pumps. The valuation of these devices by the affected populations remains unknown. We investigate willingness to pay for such devices, using a choice experiment with a sample of Pacific Islanders in the upper North Island. This is a high-risk group for respiratory disease, who typically rent crowded and inadequately heated dwellings. Using both conditional logit and panel mixed logit models, we find reasonably precise estimates of the willingness to pay for four improved heating and humidity control devices, which would cover the capital costs of two of the devices, and about three-quarters of the cost of the other two devices.

KEYWORDS:

• Choice experiments
• housing
• respiratory health
• willingness to pay

JEL CODES:

• C25
• I12
• Q53

Acknowledgments

Financial support from Marsden Fund [grant number UOW1101] and ethical approval from the human ethics committee of the Waikato Management School are acknowledged. The views expressed here are those of the authors alone. We are grateful for the assistance of the respondents and interview team leaders and the helpful comments from two referees and the associate editor.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Whether all devices are as effective as claimed is an important issue, especially for HRV systems that advertise space heating benefits from using roof space air for ventilation. Observations from dwellings in Dunedin, and computer modelling using climate data from other main centres, suggest that HRV systems provide only 0.5 kW of heat at most (Fitzgerald et al, 2011). This is just one-fifth of the output of a typical bathroom heater. The problem is that heating is needed at times when roof space air is often colder than the internal temperature of the house. Since almost no respondents in the survey had direct experience of these systems, the willingness to pay reflects perceived benefits and this introduces a role for potentially misleading advertising about heating provided by ventilation devices.

2. It is also the case that interventions applied to landlords (e.g., subsidized installations or regulated minimum heating standards for rental properties) may ultimately be borne by tenants, depending on supply and demand conditions in the rental market. It is, therefore, useful to estimate the private value that occupiers place on warmer and drier homes, since they may ultimately bear some of the cost. Indeed, to the extent that landlords increase private costs for tenants (via higher rent) for homes with improved insulation or heating, there would be a revealed preference estimate of the private gains from warmer and drier homes. Using rent changes would be an alternative to the choice experiment approach used in this paper.

3. The values that participants place on the devices are not the same as the calculated public benefits, which include reductions in subsidized medical costs that an individual would not bear anyway.

4. In a study of a different health problem on a similar population, Gibson et al (2013) find a similar result; while 35% of a sample of Tongan immigrants in New Zealand had measured hypertension just 4% of them reported that they had ever had a diagnosis of high blood pressure.

5. Details on Ngene software are available at http://www.choice-metrics.com/index.html

6. The higher marginal utility of income for homeowners implies that, all else the same, they have lower WTP for these devices. We speculate that homeowners face other investment options, such as paying off mortgage debt, which are considered more rewarding than the proposed heating improvements. Our survey did not ask how much mortgage debt was held by the owners, so we cannot test this speculation.

Additional information

Funding

Marsden Fund [grant number UOW1101]