By Angela Gonzales | Phoenix Business Journal
As drought conditions worsen across the Southwest, some Valley homebuilders are running into problems securing a water supply for their projects.
That’s because the Arizona Department of Water Resources — the state agency that issues water certificates — is changing certain groundwater models, causing some developments to come to a halt as builders wait for approvals in certain areas, particularly Pinal County and the West Valley.
As developers run out of buildable land, forcing them to the outskirts of the Valley, they can face water supply hurdles. And now that ADWR is questioning whether existing groundwater supply is enough for these projects, builders may eventually need to rely on other sources that could add to the cost of building a home.
There are certain areas of the Valley where builders don’t have access to groundwater sources, but they know ahead of time they will be responsible for securing other water sources.
But this is different.
Now some builders who thought they had access to groundwater for land already purchased are now being told there might not be enough water for their projects.
“The one thing we don’t like in this business is uncertainty,” said Mark Stapp, a real estate developer and executive director of the master of real estate development program at WP Carey School of Business at Arizona State University. “The one thing this is creating is uncertainty.”
ADWR’s shift comes at a time when Colorado River reservoirs are dropping to critically low levels. On August 16, the Department of the Interior said Arizona and other states would face further cuts in 2023, putting more pressure on Valley municipalities — many of which have taken initial steps to preserve water or shift allocations — to grapple with potential shortages in the future.
Different rules for commercial, residential use
Homebuilders are required to make sure their projects have 100 years of assured water supply in accordance with the Groundwater Management Act of 1980, said Spencer Kamps, vice president of legislative affairs for the Home Builders Association of Central Arizona. As part of that act, homebuilders are required to replenish the groundwater they use, he said.
And if water issues hold up homebuilders’ ability to build homes to keep up with demand, he said, which will lead to fewer companies moving here.
“Somebody is asleep at the switch about how we’re going to grow as a state,” Kamps said.
Certain cities — such as Phoenix, Chandler and Mesa — are designated by ADWR as having an assured or adequate water supply. Homebuilders have been able to expand in those cities without having to worry about water, he said.
However, some of those municipalities are running out of land, which is why builders have to look to the Valley’s periphery.
And as homebuilders are the only ones held to the 100-year test of assured water supply — essentially to protect homebuyers — that has left the door wide open for multifamily developers, including apartments and build-to-rent communities, which aren’t held to the same standards. Industrial and commercial projects also aren’t held to the same 100-year assured water supply and replenishment standards, Kamps said, unless they subdivide six lots or more.
“What that does is the Groundwater Management Act assures that our groundwater tables are going to be pumped dry,” Kamps said. “What we’ve ultimately done with the department’s model is we’re shutting down the one land use that actually saves groundwater and encourages the mining of groundwater.”
As a state, we need to figure out if for-sale housing has any value, Kamps said.
“Our water laws conflict dramatically with achieving that goal if for-sale housing is important to Arizona,” he said. “It’s time to have a really healthy conversation about how we grow as a state.”
Cheryl Lombard, president and CEO of Valley Partnership, said this is now an economic development issue.
“If you’re not able to build homes where jobs are, that’s a bit of a concern,” she said.
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