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It's a worst-case scenario for homeowners in a suburb of Scottsdale, Arizona. Due to drought conditions in the Southwest, the water supply for Rio Verde Foothills has been shut off. Residents have been left scrambling for water. They have filed a lawsuit, but the bigger question is whether the building boom can continue in Arizona. Land has been inexpensive in Arizona but without enough water, is land really that cheap? Hi, I'm Kathy Fettke and this is Real Estate News for Investors. If you like our podcast, please subscribe and leave us a review. Scottsdale supplied Rio Verde Foothills with water for decades, since it sprouted into existence in the 1970's. It's an unincorporated part of Maricopa county with about 600 homes and about 1,000 residents. The water was trucked in, but with a decades-long drought and a shrinking supply of water from the Colorado River, Scottsdale says it needs to conserve water for its own residents and can no longer deliver water to Rio Verde. It's not just a wake-up call for the residents of Rio Verde, but for residents across Arizona and the western part of the U.S. where drought conditions are ongoing. In a Time article on the water crisis, the author poses the question: "In an era where climate change is shrinking the water supply, should the desert state (of Arizona) keep building homes that depend on water from elsewhere?" It's a question with significant repercussions at a time when the state is enthusiastically welcoming new residents and encouraging growth. Arizona's population has skyrocketed over the last 50 years and is currently at about 7.35 million residents. Census Bureau data shows that Arizona's population surged 1.3% from July 2021 to July of last year. That represents more than 94,000 people coming into the state and puts Arizona in fifth place for U.S. population growth. The only states with more growth were Georgia, North Carolina, Florida and Texas. (2) Census Data also shows that Maricopa county, where Phoenix, Scottsdale and Rio Verde are all located, is the eighth fastest growing county in the country. Time also reports that it isn't just more and more people but water thirsty companies, like data centers, which are expanding into the area and impacting the precious water supply. Some say that the water supply can no longer support the growth boom, and that's a concept that developers and builders are wrestling with. Arizona's governor, Katie Hobbs released a report that shows a huge water deficit in an area west of Phoenix in the White Tank Mountains where developers want to build. According to Time, these are homes that would house about 800,000 people. But Arizona is now reporting to the local media that developers will have to find their own water supplies or some other solution, before they can build. Since the state's supply of water from the Colorado River is already spoken for, they won't be getting it from there. If they can't get enough from the ground, they may have to truck it in, which didn't work very well for the residents in Rio Verde. Other ideas have included a pipeline from some distant water saturated area, or from a desalination plant that's yet to be built in Mexico's Sea of Cortez. With drought and climate change issues intensifying, these kinds of ideas are coming to the forefront. Developers see the water pipeline idea as a way to create a stable source of water that will sustain growth for years to come. And maybe that's what the Southwest real estate industry needs. But Time reports there's also the unmentionable idea that growth cannot continue as it has been, and the pipeline/desalinization idea is the only inevitable solution. It comes with several drawbacks however. First, the process involves wastewater that would probably be dumped back into the Sea of Cortez and potentially harm sea life. The pipeline would also cut through Organ Pipe National Monument in Arizona, and across land in Mexican territory, which might not sit well with various groups of people. Desalination is also very energy intensive and could generate a lot of greenhouse gas emissions. Cary Meiser of the Yuma Audubon Society says: "We as Arizonans can't just keep taking water from somewhere else without considering how it impacts the people and places we're taking it from." On top of those drawbacks, the desalination isn't cheap and is sure to increase the cost of water for customers. Time reports that cities and states typically pay about $50 to $150 for one acre-foot of water, which is about what a family of three in Phoenix would use in a year. The cost of desalination would add about two- to three-thousand dollars onto that price for the same quantity of water. If water gets that expensive, it's sure to impact Arizona's real estate industry. Properties with a secure source of water will suddenly be more valuable, while others lose value. Banks may also be more willing to make loans to properties with stable, less expensive water. Currently, the Colorado River supplies water to about 40 million people in seven states and Mexico including Arizona, California, Colorado, Nevada, New Mexico, Utah, Wyoming. The wet winter has raised some amount of hope for a snow melt in the Rockies that will replenish the Colorado River, but as NPR reports, the winter is far from over, and conditions could change. (3) For people in Rio Verde, there are back-up sources that are being used to truck in some amount of water. But transporting the water involves longer distances, and therefore more expense. The New York Times says that water bills have jumped from around $220 a month to $660 a month and it's unclear how long this back-up arrangement may last. (4) Some people have resorted to hauling their own water. They put the water into large containers in the back of their pick-up trucks. It consumes an additional 10 hours a week just to get water. The Times reports that experts don't think Arizona will suffer big water cuts in the near future, but Governor Hobbs is promising to upgrade current groundwater rules. The update would reportedly address a long-standing rule that allows developers to build five or fewer homes without proof of a 100-year water supply. The Rio Verde developers apparently skirted the rule by dividing the project into groups of five homes or less. Many people are drawn to Arizona because of inexpensive land prices and the beauty of the desert, but University of Arizona professor of human and environmental geography, Margaret Wilder, hopes the people of Arizona will realize the risks of unregulated expansion. She told Time: "I'm not an advocate of pulling up the bridge behind us, but we need to slow this train down." As for the Rio Verde lawsuit against the City of Scottsdale, an Arizona superior court judge denied a temporary stay. The court commented that "the court cannot and should not make water police decisions in lieu of the appropriate authorities." The lawsuit will continue from there with additional arguments. (5) If you'd like to learn more about the process of buying real estate in markets that make sense, with a good water supply, check out the Learning Center at our RealWealth website. You can join for free at newsforinvestors.com. And please remember to subscribe to our podcast, and follow me on instagram @kathyfettke for real estate market updates and commentary. Thanks for listening! Links: 1 - https://time.com/6248517/arizona-growing-population-drought-housing/ 2 - https://www.abc15.com/news/business/census-finds-arizona-to-be-a-top-5-state-for-in-migration 3 - https://www.npr.org/2023/01/22/1150197343/why-heavy-winter-rain-and-snow-wont-be-enough-to-pull-the-west-out-of-a-megadrou 4 - https://www.nytimes.com/2023/01/16/us/arizona-water-rio-verde-scottsdale.html 5 - https://www.azfamily.com/2023/01/23/judge-sides-with-city-scottsdale-lawsuit-rio-verde-foothills-water-loss/
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