Water availability/sustainability long term

[Cody L Cowart]

Hello all I am considering getting a primary residence to house hack next year and I am trying to decide on what market I would like to be in. This would be a buy and hold SFH (Maybe 3 bed 3 bath?) and cash flow deal. Having moved to Phoenix in March I am really enjoying the city and considering staying. However I am wondering about if water shortages could be problematic and if there are shortages cause my houses value to drop substantially. This utility company for Phoenix seems confident they will have water for the foreseeable future (https://droughtfacts.com/risks...) but at the same time everyone knows the southwests water reservoirs are drying up. Just curious to hear peoples thoughts, especially people that live in the Southwest. Thanks for your time.

-Cody

[Scott Trench]

Interested to hear what others think about this. 

Personally, I wonder if the water shortage is a good thing for property values in areas like Phoenix or SoCal. Yes, the cost of that utility will rise, but perhaps more importantly, it may limit supply of new construction. Generally, new districts need to build reservoirs and water treatment facilities that cover the needs of the future residents, without coming at the cost of existing residents. People don't generally elect representatives who will allow them to run out of water. 

So, I think that water shortages in the Western United States are more likely to limit new construction in the next few decades, which will force prices and rents up. It's anybody's guess, but I bet that more than compensates for the cost of water as a utility for homeowners, and tenants often pay water anyways. 

If things get REALLY bad, then yes, things like rationing, inability to water lawns/gardens, etc. may cause demand problems in those markets. 

[Bruce Woodruff]

This is not a global warming issue as it is popular to think, this is about too many people. The droughts and dryspells go back to the beginning of time, but the real problem is this area was never expected to support these tens of millions of people. Southern Nevada, Arizona, Southern California, Northern Mexico were not expected to be what they are back in the 1930s when the Hoover Dam and accompanying infrastructure were conceived. I mean who the heck would want to live in the desert, right? :-)

It's already getting bad already and will only get worse until the population problem decreases. And as @Scott Trench projects, this could really affect housing, both existing and new, in the future..... Who wants to live in a nice house where you can't have a pool/water a lawn/take showers/wash clothes/Etc?

I could see a lot of people flooding back to East just because of water issues. Even with a few years of heavy rain and snowfall, this problem will not be solved...too many people living off too little available water....

[Mike Lambert]

@Cody L Cowart

@Scott Trench

@Bruce Woodruff

Interestingly, I saw a report on CNBC about that very issue. While there is currently a migration towards the Sun Belt, which is great for real estate there for the time being, they were mentioning that the future migration flow will be climate-induced and the best place in the US will be the Great Lakes Area and the city of Chicago as its main center is already preparing for that. By the way, I'm spending the summer in one of my home countries Canada and I can tell you that, while the US and Europe are suffering from the heat, we're having delicious summer days. Our grass is green, our vegetation is lush and our dams are full, so much so that our province of Quebec recently signed a mega contract to provide electricity to New York City.

I'm currently working on developments in Mexico's three main tourist areas. While we don't have that issue in the Riviera Maya or the Puerto Vallarta - Riviera Nayarit area, we're confronted with the same issue in the Cabo area, where construction permits are hard to get there because water permits are hard to get.

[Chad McMahan]

Quote from @Cody L Cowart:

Hello all I am considering getting a primary residence to house hack next year and I am trying to decide on what market I would like to be in. This would be a buy and hold SFH (Maybe 3 bed 3 bath?) and cash flow deal. Having moved to Phoenix in March I am really enjoying the city and considering staying. However I am wondering about if water shortages could be problematic and if there are shortages cause my houses value to drop substantially. This utility company for Phoenix seems confident they will have water for the foreseeable future (https://droughtfacts.com/risks...) but at the same time everyone knows the southwests water reservoirs are drying up. Just curious to hear peoples thoughts, especially people that live in the Southwest. Thanks for your time.

-Cody

Cody,
your question is rational and important to ask. I wish this issue was making larger waves across the nation, so that more media, government and/or politicians leaned toward solving it, ahead of the curve- instead of far behind.

The southwest, including Arizona has a water problem. I have been closely researching and monitoring this for many years and the problem gets noticeably worse, as time goes on. I predict that over the next 5 years, it will become part of 90% of conversations about real estate speculation in the SW. We desperately need to quickly and heavily invest in more conservation and recycling, as well as bringing additional water into the southwest/AZ.

However, when it comes to investing, I'm also seeing that regardless how bad the water issue gets, as a state(AZ), a region(SW), and a country, we just kind of push through it, with a combination of good and bad solutions, real estate values stay strong (aside from nation-wide or global downturns). Bottom line, water shortage (Phx) VS abundance (Sedona) is important and definitely an influential factor, but not an essential piece to stable investing- yet. The question, is whether it will begin to more noticeably help/hurt real estate appreciation. Honestly, I thought we would be feeling more of the impact by now. It's coming, but the train has not yet pulled into the station.

[Bruce Woodruff]

Quote from @Chad McMahan:

We desperately need to quickly and heavily invest in more conservation and recycling, as well as bringing additional water into the southwest/AZ.

Yes we do. If I were in charge (haha) I would have California start desalination and get them off the Colorado River system. That alone would fix the problem. But they won't.....

[Seth Borman]

Quote from @Bruce Woodruff:

Quote from @Chad McMahan:

We desperately need to quickly and heavily invest in more conservation and recycling, as well as bringing additional water into the southwest/AZ.

Yes we do. If I were in charge (haha) I would have California start desalination and get them off the Colorado River system. That alone would fix the problem. But they won't....

Desalination is too expensive, it would be like solving a power shortage by hiring day laborers to generate power on stationary bicycles.

Toilet to tap is a lot cheaper. Rainwater capture is cheaper. Tearing out lawns, golf courses, cotton or hay fields... it's all cheaper.

[Seth Borman]

Quote from @Chad McMahan:

We desperately need to quickly and heavily invest in more conservation and recycling, as well as bringing additional water into the southwest/AZ.

 Right now water isn't priced for conservation. I will know that people are serious about saving water when they start to price it like it is important.

[Cody L Cowart]

Thanks for everyone's responses. If I find a good deal and the numbers work out the earliest I would be ready to get a property will be next year. So in the meantime just going to save and seek out more information. If I come across anything really valuable or helpful on this topic I will be sure to post it in here.

[Bruce Woodruff]

Quote from @Seth Borman:

Desalination is too expensive, it would be like solving a power shortage by hiring day laborers to generate power on stationary bicycles.

There are cheaper ways of doing it, do a quick search. And as your other post said, if we drive up the cost of water, the cost to desalinate might look awfully cheap after a while....

[Seth Borman]

Quote from @Bruce Woodruff:

Quote from @Seth Borman:

Desalination is too expensive, it would be like solving a power shortage by hiring day laborers to generate power on stationary bicycles.

There are cheaper ways of doing it, do a quick search. And as your other post said, if we drive up the cost of water, the cost to desalinate might look awfully cheap after a while....

 No, it's never going to look cheap, because it never will be. It's 100x the price of surface water. Cutting water consumption is much cheaper than finding more water.

[Cody L Cowart]

https://www.climatealpha.ai/post/feature-no-water-no-workers...

[Bruce Woodruff]

I wonder what the numbers are on piping water from the Great Lakes down to the Southwest US.....?

[Noah Corwick]

The water scenario has not affected the AZ market much at all yet. So far the only change that has occurred because of it is that Scottsdale has banned real grass from being used on new builds or adding it to existing builds. 

I think an interesting change will be if they put water restrictions on golf courses. Golf has grown so much, especially in AZ. They notoriously use large amounts of the CAP water supply and more of them are popping up.

Who knows what the future holds, but no signs are pointing to this topic slowing real estate down. 

[Chad McMahan]

Quote from @Noah Corwick:

The water scenario has not affected the AZ market much at all yet. So far the only change that has occurred because of it is that Scottsdale has banned real grass from being used on new builds or adding it to existing builds. 

I think an interesting change will be if they put water restrictions on golf courses. Golf has grown so much, especially in AZ. They notoriously use large amounts of the CAP water supply and more of them are popping up.

Who knows what the future holds, but no signs are pointing to this topic slowing real estate down. 

I disagree that it hasn't impacted the AZ real estate market. There is some rising concern from potential buyers that opt to "wait and see" or buy elsewhere. Based on feedback I get from clients, blogs I read here on BP, videos I watch online, when I'm interviewed for other podcasts, and some other sources, I'd say so far we have an impact of 10%+ to decreased sales. I expect this number to rise over the next 5 years, and if AZ cannot get some better water solutions in place within the next 5-10 years, it could be much more significant. The good news is that Phx has been storing drinking water underground for years and has collected quite the nest egg, for when it's needed. But, it's a rationing solution, not a long term solution.
Phoenix may be headed for trouble with its massive population, strong and population growth, and dependence upon river water from outside the state.

Interesting AZ water trivia:
-72% of AZ water use is agricultural. Of course, the majority of this use is when it's hot.
-Yuma provides 90% of the USA lettuce supply during the winter.
-The challenge is, farms providing important winter crops can not stay in business if they only farm during the fall/winter- they must also make money the rest of the year, so to stay in business they farm this dry state year-round, using a lot of water in the process.

When I first learned about the high use of water by farmers in Spring/Summer, I knee-jerked a bit. But saying they need to stop this is not realistic. However, it may be realistic to require that in the warmer months they only plant crops that use less water- there are some that are quite profitable.
My educated guess- is this would reduce AZ water use by 5-10%, which is quite significant.

All the above being said, areas that have an abundance of groundwater, like Sedona, are in great shape for water.

[Noah Corwick]

Quote from @Chad McMahan:

Quote from @Noah Corwick:

The water scenario has not affected the AZ market much at all yet. So far the only change that has occurred because of it is that Scottsdale has banned real grass from being used on new builds or adding it to existing builds. 

I think an interesting change will be if they put water restrictions on golf courses. Golf has grown so much, especially in AZ. They notoriously use large amounts of the CAP water supply and more of them are popping up.

Who knows what the future holds, but no signs are pointing to this topic slowing real estate down. 

I disagree that it hasn't impacted the AZ real estate market. There is some rising concern from potential buyers that opt to "wait and see" or buy elsewhere. Based on feedback I get from clients, blogs I read here on BP, videos I watch online, when I'm interviewed for other podcasts, and some other sources, I'd say so far we have an impact of 10%+ to decreased sales. I expect this number to rise over the next 5 years, and if AZ cannot get some better water solutions in place within the next 5-10 years, it could be much more significant. The good news is that Phx has been storing drinking water underground for years and has collected quite the nest egg, for when it's needed. But, it's a rationing solution, not a long term solution.
Phoenix may be headed for trouble with its massive population, strong and population growth, and dependence upon river water from outside the state.

Interesting AZ water trivia:
-72% of AZ water use is agricultural. Of course, the majority of this use is when it's hot.
-Yuma provides 90% of the USA lettuce supply during the winter.
-The challenge is, farms providing important winter crops can not stay in business if they only farm during the fall/winter- they must also make money the rest of the year, so to stay in business they farm this dry state year-round, using a lot of water in the process.

When I first learned about the high use of water by farmers in Spring/Summer, I knee-jerked a bit. But saying they need to stop this is not realistic. However, it may be realistic to require that in the warmer months they only plant crops that use less water- there are some that are quite profitable.
My educated guess- is this would reduce AZ water use by 5-10%, which is quite significant.

All the above being said, areas that have an abundance of groundwater, like Sedona, are in great shape for water.

You mentioned some valid points Chad. 

I personally, as well as my brokerage, have not encountered much pushback from clients at any stage regarding this specific issue. The pushback is the typical "rates are too high" or "I'm waiting for the market to crash" objections. I also have not seen it slow down investors (in state and out of state) looking to add doors to their portfolio. Maybe we are working with client's in different areas or walks of life. As it sounds like our experiences are vastly different. 

Interesting note on the 10%+ decreased sales specifically related to this topic. Is there a link to where you are getting this statistic? Or is this more of an estimate? 

I did forget to point out one major sector that has been affected by this scenario, which is the halt on new construction that relies on ground water. This is definitely a big hit on builders and will impact the already low home supply numbers that we already have. In that regard, I do believe the market will be impacted because of it in the future. 

Great note on the agriculture topic. Figuring out a fair solution would help considerably. I don't see this being amended anytime soon, but hopefully it's in the mid term/long term road map! 

[Chad McMahan]

Quote from @Noah Corwick:

Quote from @Chad McMahan:

Quote from @Noah Corwick:

The water scenario has not affected the AZ market much at all yet. So far the only change that has occurred because of it is that Scottsdale has banned real grass from being used on new builds or adding it to existing builds. 

I think an interesting change will be if they put water restrictions on golf courses. Golf has grown so much, especially in AZ. They notoriously use large amounts of the CAP water supply and more of them are popping up.

Who knows what the future holds, but no signs are pointing to this topic slowing real estate down. 

I disagree that it hasn't impacted the AZ real estate market. There is some rising concern from potential buyers that opt to "wait and see" or buy elsewhere. Based on feedback I get from clients, blogs I read here on BP, videos I watch online, when I'm interviewed for other podcasts, and some other sources, I'd say so far we have an impact of 10%+ to decreased sales. I expect this number to rise over the next 5 years, and if AZ cannot get some better water solutions in place within the next 5-10 years, it could be much more significant. The good news is that Phx has been storing drinking water underground for years and has collected quite the nest egg, for when it's needed. But, it's a rationing solution, not a long term solution.
Phoenix may be headed for trouble with its massive population, strong and population growth, and dependence upon river water from outside the state.

Interesting AZ water trivia:
-72% of AZ water use is agricultural. Of course, the majority of this use is when it's hot.
-Yuma provides 90% of the USA lettuce supply during the winter.
-The challenge is, farms providing important winter crops can not stay in business if they only farm during the fall/winter- they must also make money the rest of the year, so to stay in business they farm this dry state year-round, using a lot of water in the process.

When I first learned about the high use of water by farmers in Spring/Summer, I knee-jerked a bit. But saying they need to stop this is not realistic. However, it may be realistic to require that in the warmer months they only plant crops that use less water- there are some that are quite profitable.
My educated guess- is this would reduce AZ water use by 5-10%, which is quite significant.

All the above being said, areas that have an abundance of groundwater, like Sedona, are in great shape for water.

You mentioned some valid points Chad. 

I personally, as well as my brokerage, have not encountered much pushback from clients at any stage regarding this specific issue. The pushback is the typical "rates are too high" or "I'm waiting for the market to crash" objections. I also have not seen it slow down investors (in state and out of state) looking to add doors to their portfolio. Maybe we are working with client's in different areas or walks of life. As it sounds like our experiences are vastly different. 

Interesting note on the 10%+ decreased sales specifically related to this topic. Is there a link to where you are getting this statistic? Or is this more of an estimate? 

I did forget to point out one major sector that has been affected by this scenario, which is the halt on new construction that relies on ground water. This is definitely a big hit on builders and will impact the already low home supply numbers that we already have. In that regard, I do believe the market will be impacted because of it in the future. 

Great note on the agriculture topic. Figuring out a fair solution would help considerably. I don't see this being amended anytime soon, but hopefully it's in the mid term/long term road map! 

The 10% is my own personal estimate, based on 15 years in the business as an investment specialized real estate agent and doing a lot of business and talking with a lot of clients and potential clients, as well as consulting for many, and interviewing on many investment podcasts, etc. The estimate could very well be high or low, but feels about right.

[Bruce Woodruff]

My only relevant observation is that we are currently selling a house in N Arizona (north of Prescott) and virtually every prospective buyer and realtor is asking about the availability of water and the size of the supply. Fortunately we are sitting on a aquafer that is huge, some say the size of Lake Michigan :-), but extremely large at the very least. 

Arizona has a ton of water available to it, the City of Prescott boasts a 100 year back supply. as do many towns around the state. 

The huge amount of development around Phoenix over the past few decades has not made the situation any better and I would bet that overall large development is curtailed, at least until they figure something out.

Sidenote - when I venture out of the countryside now, I end up in Surprise which is a surpisingly :-) cool little town...It seems to be nothing but lakes, fountains and green golf courses, I swear you would think you were in the Midwest or Northeast somewhere, Lol...hard to believe you are in the desert except for the beautiful desert plants.....and dry heat.....

[Henry Clark]

Average 13 inches of rain per year

Elevation change 12,600 down to 70 feet above sea level.

56 people per square mile.

Arizona 146 gallons per day average per person.  Average US is 60 gallons per day.  53,000 gallons per person per year in Arizona. Not including agriculture.

Population 7,276,000

7,276,000 x 53,000 gallons= 385,628,000,000 gallons annually.

73,000,000 acres in Arizona. 
43,560 square feet in an acre

7.481 gallons per cubic foot.

equals 23,788,000,000,000 gallons

Gallons used 385 x 10 power of 9

Available 23,788 x 10 power of 9

Yes there is evaporation. 

Not recognizing aquifers.  
Downstream countries and state water rights.

1.  Arizona has more than enough water on its own.  

2.  On a state level and federal (Corp of Engineers control all streams.).  I have dealt with the Corp.   They do not care about water preservation, population water needs, or improved wildlife habitat.

3.  The state and local can only control dry areas.  No constant streams.  

4.  People in Africa and India with less than a third grade education with low rainfall and desert have been able to rectify this issue.  Far less funding and heavy equipment.   They were able to remedy the issue within two years of implementing their strategies.

I would not worry running out of water in Arizona.   They have enough water of their own. The low tech technology to increase water levels is already known and implemented in third world countries.  

Phoenix itself does not have a Brown water treatment/recycling system. Won’t have one for The next 5 to 6 years.  They just have to do it.

I would recommend you buy where they are worried about running out of water.

[Colleen F.]

@Cody L Cowart   Just don't buy eastern landscaping or flood irrigation lots. It amazes me they are still doing that in  Phoenix area.  Lived in Laveen in the late 80s and they used it there and in Mesa, probably a few other places.  Personally we didn't understand initially what it meant but we were supporting eastern landscape in the desert.  I think the water providers recover maybe half the cost of that irrigation system. 

[Bruce Woodruff]

Quote from @Henry Clark:

I would recommend you buy where they are worried about running out of water.

BIngo.....!