Southwest Investors: Are water shortages a concern long term?

Question

I've seen several articles and videos concerning lake levels dropping and various droughts in the southwest including Arizona, Nevada and Southern California. Are these real issues? Do buy and hold investors take this risk into account when investing in this area? I'm not an investor nor plan to invest in this part of the country, but I've always wondered if this was a real long-term risk factor that is considered.

Jeremy Holden · Answer

I'm an investor and agent out in metro Phoenix so I get this question quite often. When building large subdivisions in high-density areas of Arizona, developers have to conduct testing and get sign-off from the AZ water authority. The testing has to show that there's at least 100 years of water supply for the proposed community to receive approval. Whether these tests are legitimate or not is outside the scope of my expertise or a real estate forum, but it is part of real estate law out here.

Arizona recycles over 85% of its water similar to other barren geographies like Israel. The recycled water is not for human consumption since it's not of drinking grade. Rather, it's used for agriculture as others have mentioned. Water is top of mind for all business activities out here.

Account Closed · Answer

@Ronaldo Marion I live in Las Vegas and I am! But I'm also visiting Lakeville, Minnesota right now and there are water restrictions here too. And ironically water is more expensive in MN than in NV!!! The twin cities haven't received enough rain water. Brown grass here too.

I have a client who's a US Diplomat and he lived in the middle east for many years. I spoke to him about desert water concerns and he believes there is too much existing technology that hasn't been tapped in the US yet. The middle east is an expert at desalination.  The technology is expensive and energy-intensive and their government heavily subsidizes water rates to keep prices low. But it's a feasible long-term option for California and surrounding states.

I believe the biggest impact will be with landscape irrigation. Fines in Henderson can be anywhere from $40 - $2,560. Las Vegas is already one of the premier cities for sewer water reclamation from home/hotel/business use. Just be prepared for the city to become less green overtime. Near my house in Green Valley the city of Henderson is actively removing sidewalk/ornamental grass and replacing with water wise desert landscaping.

I'm less concerned now than I was 3 months ago.

-Heidi

Seth Borman · Answer

Very few existing houses don't have property rights. It happens but it is very rare.Vacant land without property rights isn't a big deal, it'll just stay vacant until someone finds some water.

Phillip Dwyer · Answer

@Seth Borman Not every property comes with water rights.  Often those are stripped away long before development similar to mineral rights.

Brian Walters · Answer

Don't forget California almonds.  Take a look at how much water it takes to both grow almonds and also to produce almond milk.

Seth Borman · Answer

People don't use a lot of water, growing hay, cotton and alfalfa in the desert uses a lot of water. It's a non-issue in the grand scheme of things, and if you really are concerned consider that you get water rights with every house you buy. If we were to run out of water... existing buildings will still have access to it while hook ups will not be permitted.When water does get hard to find people might start pretending to care about it. Most domestic water use in Arizona is for pools and landscape irrigation.

Bill B. · Answer

Water in Las Vegas is less than $1.50 for 1,000 gallons. Has been for the 20 years I’ve been here. What am I afraid of? Water suddenly doubling? Tripling?  quadrupling? So what. It would be a steal at 4 x the price. It would still be Way less than cable tv. We use less water than when our population was half of today.

Hopefully more and more of California’s farms become housing, that’s the easiest way to save water. Look up Avocado farming water use.

Zach Wain · Answer

@Ronaldo Marion - the investors I speak with (in Phx) are generally not too concerned about.  I personally am, but with 70% of the southwest water usage coming from farmers, that is likely the first area to really the pain, which is unfortunate but probably necessary.  Las Vegas has actually cut its water usage while growing, so cities can improve.  Phoenix needs to step up its game IMO with water restrictions or tax incentives to remove grass and put turf in, etc.  There are crazier and more expensive ideas for desalination plants in the sea of cortez or even Texas and pipe it in.  But that is extremely expensive and may never happen.

Chad McMahan · Answer

Ronaldo,

Yes, this is a long term issue and a short term issue. Cities like Phoenix are pulling a lot of water and may see some panic within the next 5-10 years. Towns like Sedona are in great shape, with a 500+ year underground water supply.

Drewson Begay · Answer

thats a good question look what is being built. the chip shortage and arizona got huge projects going up rich boys coming from cali buying up houses n building more. the regular joe just tryin to get by. the tourist are what makes az and thats been around 4ever. lake levels?????

with the amount of lake community they are building they wonder why the water dropping. just people being greety not going to a natural made lake to swim. they suppose to travel move the money around help your fellow man kind. rules and regulation i hope they come into play because the rich know how to play the system and the average joe just trying to get by.