Why Homeowners Say ‘No Thanks’ to Cost-Sharing

Cost-sharing programs meant to entice homeowners to install runoff-reducing rain gardens, rain barrels and conservation landscaping often aren’t worth enough to overcome the perceived hassle of the programs—and now a University of Maryland environmental economist and his colleagues have put a dollar value on those enrollment barriers.

The study published this week in the American Journal of Agricultural Economics estimates how much various components of a cost-share program reduce the incentive to homeowners. By quantifying these features or requirements by cost, the researchers were able to develop a model for local governments to more accurately estimate the likelihood of enrollment in the programs intended to lessen flooding and prevent lawn chemicals from reaching water bodies like the Chesapeake Bay.

“Some of the cost-sharing incentive is dissipated through what we call ‘transaction costs’—things such as the effort it takes to complete the application process, find a contractor, receive a rebate payment or obtain final inspections,” said David Newburn, an associate professor of agriculture and resource economics and co-author of the study. “We decompose the whole enrollment process into discrete parts and quantify each barrier to show its impact on the incentive.”

Newburn and his colleagues based their analysis on surveys of 1,700 homeowners with yards throughout the Baltimore metropolitan area, asking about their willingness to participate in a variety of proposed incentive programs. They differed in features like the percentage of costs shared, whether incentives were paid up front or after installation, whether homeowners had to find contractors on their own and who was responsible for paperwork. The team created 48 programs based on combinations of these features.

Their survey data revealed that certain parts of a program that required effort from homeowners reduced their willingness to participate, and did so in a predictable, quantifiable way.

For example, if a cost-share program paid $9.38 per square foot (or 75% of the installation costs) for a rain garden, but the homeowner had to pay upfront and get a rebate later, willingness to participate dropped to the same level as if the program paid $6.70 per square foot upfront. If the homeowner was responsible for the application paperwork, the value of the incentive dropped again by $2.05, and it fell another $2.80 if the homeowner had to apply for the final inspection. A program with all three barriers was whittled down to a value of $1.85 per square foot, or less than 15% of the cost.

Their model also identified the types of changes that could make existing incentive programs more attractive—and convenience topped the list.

“If we had turnkey programs, like the solar industry does, for instance, where contractors handle the application paperwork and inspections, that would do a lot to increase adoption rates of stormwater management practices,” Newburn said.