The 23-year drought that’s parching the Southwest is forcing Arizona to make a bitter choice. Unless developers can find new sources of water, the state’s largest master-planned housing development is going to remain a desert.
It's not just an Arizona problem. Across the American West, demand for housing is increasingly running into water shortages. Surface waters like the Colorado River are drying up, forcing cities and farmers to turn to groundwater. Unfortunately, most groundwater is finite, and once depleted it's difficult or impossible to replenish.
So unless developers can figure out a stable, long-term alternative, a future of fast growth in the American West is in serious doubt. Even in a best-case scenario, housing is set to become more limited and even more expensive. Whatever solution Arizona settles on in the coming years could set a precedent for other cities and states that will inevitably find themselves at a similar crossroads.
The Arizona subdivision in trouble is west of Phoenix, where Howard Hughes Corp. recently broke ground on a 37,000-acre development planned to include 100,000 new homes. That should have been good news for Arizona, the second-fastest growing U.S. state. But Arizona law requires new subdivisions to have an assured, century-long water supply, and regulators recently determined there isn't one.
Arizona's 19th century settlers drilled wells and relied upon what seemed like an endless supply of groundwater. Surface waters also beckoned, and over the decades government funding built dams, reservoirs, and canals that fueled fast-growing central Arizona communities like Phoenix.
But groundwater remained irresistible, especially for industry. In 1977, Arizonans extracted 2.5 million more acre-feet of groundwater (an acre-foot is equal to roughly 326,000 gallons) than was replenished annually, putting many aquifers — which can take centuries to replenish — at risk of emptying. The federal government was so alarmed that it threatened to halt the construction of the Central Arizona Project — an aqueduct to deliver Colorado River water to central and southern Arizona — if the state didn't come up with a management plan.
So in 1980 a bipartisan consensus forged Arizona's groundbreaking Groundwater Management Act. Among other provisions, the law requires that developers who wish to build subdivisions within Arizona's most populous areas must first prove that a development would have a 100-year “assured water supply.” For 40 years, that proof wasn't hard to obtain. Aqueducts and canals transported Salt and Colorado River water to fast-growing parts of the state. Maricopa County, home to Phoenix, became one of the fastest growing counties in the U.S., its comparatively affordable housing attracting migrants from across the country. To keep the growth going, Arizona also planned ahead: In the mid-1990s it began banking excess Colorado River water in empty aquifers around the state to be withdrawn when needed.
That need came sooner than most expected. Since 2000, a “megadrought,” intensified by the effects of climate change, has baked the Southwest with profound impacts. In 2021, the U.S. Department of the Interior declared its first-ever Colorado River shortage and mandated cuts to water usage in Arizona and other states. For now, there's enough water to last most Arizonans for years. But as the Southwest U.S. becomes hotter due to climate changes, surface waters that the region relied upon for decades won't be as available to backup or recharge groundwater supplies.
That shift is taking a toll on Arizona's housing. In early January, the state’s new governor, Katie Hobbs, released a report showing that projected developments west of Phoenix, including most of the massive development proposed by Howard Hughes Corp., don’t have 100-year water supplies, putting those projects in limbo.
Impacts ripple well beyond the Phoenix suburbs. A 2022 study of rural Arizona real estate, which isn’t subject to the assured-supply rule, found that home values could decline by as much as 12% under severe drought conditions as buyers avoid areas that lack reliable water access. No estimates were provided for more populated areas, but homebuyers who view their house purchases as long-term investments are likely to be wary of buying in places that might run dry in a decade. And those places already exist: On Jan. 1, Rio Verde, an exurban community east of Phoenix, lost its water supply. Who will buy there now?
Arizona developers can rely for a time on the thousands of planned new houses already approved by regulators. But the future is clouded with uncertainty. For example, Arizona's water banks store more than 4.4 million acre-feet of water underground, but that water isn’t always located where it's needed. Additional infrastructure — which will take years to build — will be needed to transport it around the state.
New pipelines, aqueducts and desalination projects may be long-term options, but they will also require huge investments. Developers might pick up some of the tab, but in the end the price of building water access in a time of shortage will be borne by the homeowners and ratepayers.
For now, the most practical growth option for developers and government may lay in Arizona's vast farm fields. Irrigated agriculture remains Arizona's heaviest water user, consuming around 74% of the available supply, and relies disproportionately on groundwater. In recent years, investors have made a business out of buying up Arizona farmland and piping the water entitlements to housing developments in more populated areas.
It's an imperfect solution that will require society and its leaders to make hard choices about the value of Arizona's small towns and agriculture. Are they worth preserving at the expense of urban development? Can other regions of the country replace Arizona's food production? Regardless of the answers, shifting water to subdivisions from agriculture may be the only way to assure a water supply that will keep the Southwest growing.
Hobbs has promised to modernize Arizona's groundwater policy to account for the impacts of climate change, drought and increasingly scarce surface water. Her new water policy council mirrors the process that led to Arizona's earlier groundwater law. It's no short-term solution, though. Developers and local officials who want to see the state continue to grow its housing and population will have to focus for now on developing in more expensive areas where water supply is sufficient. Even that is likely to hamper growth while Arizona figures out its long-term groundwater policy.
If Hobbs succeeds in adapting its water policies to optimize supplies without compromising growth, Arizona will provide an influential template that the American West is going to need.
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ABOUT THE WRITE
Adam Minter is a Bloomberg Opinion columnist covering Asia, technology and the environment. He is author, most recently, of “Secondhand: Travels in the New Global Garage Sale.”
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
