Arizona’s Cheap Water Supply Is Drying Up—and It Could Hit Affordability Hard

For decades, the explosive growth of the American West—and Arizona in particular—was made possible by a steady supply of cheap water. But now, that foundational resource is under threat as flows from the Colorado River dwindle and the rules that govern its use are set to expire.

Roughly 36% of Arizona’s water comes from the Colorado River, secured in part by a 1963 Supreme Court ruling. But the current agreement that determines how seven states and Mexico split those rights is set to expire on Oct. 1, 2026—and so far, no new deal is in place.

Downstream states like Arizona are at odds with upstream states over who should shoulder the largest cuts. The federal government has proposed multiple paths forward, including one scenario that would slash Arizona’s share by up to 57%.

If enacted, a cut that deep could dramatically change the state’s relationship with water and trickle into the economy by impacting agriculture, tourism, and housing—three of Arizona’s biggest economic drivers.

All of this is unfolding against a backdrop of record low snowpacks. Flagstaff, AZ, has clocked only 14.4 inches so far this season, less than half the historical average of 38.1—adding a dramatic flair to the already tense negotiations.

In a Jan. 12 speech before the state legislature, Arizona Gov. Katie Hobbs received a standing ovation when she called out upstream states for “digging in their heels instead of acknowledging reality.”

“As negotiations continue, I refuse to back down,” she said. “I will keep putting Arizona first and fight for the water we are owed.”

Water managers in the state emphasize that faucets won’t run dry any time soon, but the financial burden of securing and maintaining Arizona’s water future is set to grow. For homeowners, that means preparing for rising utility bills and a new era of uncertainty in a region once known for affordability.

Arizona’s growth: Chasing affordability in the desert

In recent years, Arizona has become a magnet for new construction and migration, fueled by its relatively affordable housing and low cost of living. The Phoenix metro in particular has drawn waves of newcomers priced out of California and other high-cost states.

“People are chasing affordability,” says Anita Verma-Lallian, a real estate developer and founder of Arizona Land Consulting. “In Arizona, you can get a newer home, more space, and a lower overall cost than in most California markets. Taxes and day-to-day living costs matter too. Even when salaries are similar, households just feel less stretched financially, which makes a big difference.”

That demand has reshaped the Valley of the Sun, spurring its expansion outward.

According to Verma-Lallian, the fastest-growing areas are on the metro’s fringes: “Phoenix and its suburbs are growing fast.” She points to the West Valley and Southeast Valley as epicenters of new development.

That growth has had a noticeable impact on the state’s population. In 1963, when the water rights were first settled, Arizona had a population of roughly 1,616,000 people. Today, it’s closer to 7,582,000, per U.S. Census Bureau data.

Housing has followed a similar trajectory. 

Since 2020, Arizona and California have issued more residential building permits than any of the other five Colorado River Basin states, according to data from Realtor.com. While Utah and Colorado have seen moderate growth, they don’t match the scale or urgency of demand seen in fast-growing metros like Phoenix, Las Vegas, and greater Southern California.

This disparity is fueling tension at the negotiating table. 

Arizona, California, and Nevada are pushing for lighter cuts while states farther upriver are fiercely defending the senior rights that give them first dibs on a shrinking supply. What they decide, could shape the future of affordability in the West.

‘Water bills will rise faster than the rate of inflation for the foreseeable future’

Behind Arizona’s push to defend its Colorado River allocation is a basic geographic reality. Nearly half the state is desert—split between the Sonoran, Chihuahuan, Mohave, and Great Basin—each receiving less than 20 inches of rain annually. Yet the average resident uses nearly 120 gallons of water per day.

That gap—between what the desert provides and what the population consumes—is bridged largely by imported water from the Colorado River, delivered through the Central Arizona Project: a vast network of canals, pumping stations, and treatment facilities that move water hundreds of miles across the state.

And despite the arid climate, Arizona residents enjoy some of the lowest water bills in the country.

“I'm sitting here in the state of Minnesota at this moment, the water bills here are substantially higher than they are in Arizona,” says Brett Fleck, water resources adviser for the city of Peoria, on a Zoom call.

It’s a striking contradiction: water, water nowhere—and yet so much to drink; a desert metropolis built around abundant water, backyard pools, and expansive landscaping. In at least one Phoenix ZIP code, as many as 91% of homes have pools.

But that model is becoming harder and more expensive to sustain.

“For most people in the Phoenix area, for any homeowner, they should expect their water and wastewater bills to go up faster than the rate of inflation for the foreseeable future,” Fleck says.

In addition to possible cuts in supply, Fleck points to a growing and largely overlooked need to reinvest in the infrastructure that treats and delivers Arizona’s water. While today’s residents have benefited from systems built decades ago, many of those assets are nearing the end of their useful life.

“There’s really almost no way about it,” he says. The winds are just blowing such that rates have to go up fast with inflation.”

What that means for the future of housing

The idea that Arizona can continue building cheaply and endlessly without accounting for the rising cost of water is quickly becoming outdated.

The challenge is likely to extend beyond short-term rate hikes. Fleck warns that the cost of securing replacement supplies—whether through advanced purification, desalination, or out-of-state imports—will likely be 10 times more expensive than current Colorado River allocations.

“When you think about replacing water that we're currently enjoying right now with water that costs 10 times more, it has to be paid for,” says Fleck. “There's really no way around it.”

Those added costs are likely to make developers think twice before investing in more housing in the state, as they’re already feeling the squeeze from a changing rate environment.

“We’ve had to be more disciplined,” says Verma-Lallian. “Higher rates and competitive leasing markets mean you really have to understand submarkets, structure deals carefully, and think through every assumption.”

So even if demand holds up, higher operating costs and lingering uncertainty about long-term water availability could still choke off new supply. And fewer new homes could lead to tighter inventory and upward pressure on prices.

Fleck emphasizes that there are options.

“Saying that we'll run out of water is really saying that we've run out of the will or the ability to invest in water,” he adds. “If you want great water supply, you want growth, you're going to be required to participate.”

But the price of admission is rising.