Water Affordability in the United States.

In the US, the cost of water and wastewater services is rising three‐times faster than inflation. Over the next 20–25 years, required investments in water infrastructure are estimated to exceed $1 trillion, further increasing service costs. Combined with stagnating income levels, especially for poor households, increased costs will likely aggravate water affordability issues. Here, we document the extent of water affordability concerns in the US across income, geography, and race. We find that 10% of households face water affordability concerns, defined as expenditures on essential water and sewer services greater than 4.5% of annual household income. Households in the lowest income decile pay on average 6.8% of their annual income on water and sewer service. Our estimates are based on a large‐scale data set on water and sewer rates matched with Census block‐group‐level socioeconomic characteristics and covering approximately 45% of the US population. We demonstrate that using median household income at the county level drastically understates the extent of the water affordability problem. Additionally, we find that the number of households facing affordability concerns is positively associated with the proportion of black residents and negatively associated with Hispanic residents even after conditioning on prices and poverty levels. Lastly, we show that self‐sufficient water affordability policies that provide a lump‐sum rebate to low‐income households and are paid for by income taxes redistribute the burden borne by low‐income customers with fewer unintended consequences for non‐essential consumption than policies that change marginal incentives for water and sewer consumption. Plain Language Summary: Provision of affordable water and sewer service is a growing concern in the United States, although the extent of the problem is not known and the effectiveness of different policy options are underexplored. We compile a database of water and sewer prices for approximately 45% of the United States population to estimate annual expenditures on water and sewer service. We find that nearly one in ten households spend more than 4.5% of their annual household income on water and sewer service, and that affordability concerns are correlated with race after conditioning on poverty levels. Our results have implications for how to characterize water affordability and for how corrective distributional policies can be designed most effectively. Key Points: One in ten households have essential water and sewer expenditures exceeding 4.5% of their incomeThose in the lowest decile of income spend on average 6.8% of their income on essential water and sewer serviceAffordability policies that provide lump‐sum rebates to low‐income households are less distortionary than lowering marginal water prices [ABSTRACT FROM AUTHOR]