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How will new groundwater rules impact housing development in the Valley?

By Katherine Davis-Young
Published: Tuesday, June 6, 2023 - 4:10pm
Updated: Friday, June 9, 2023 - 7:50am

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Katherine Davis-Young/KJZZ
New houses under construction in south Phoenix.

Arizona’s housing market has been booming in recent years. But now, due to projected groundwater shortfalls, the state is going to start limiting some housing development in areas that rely solely on groundwater. What will that mean for growth in the Valley?

“I think it’s going to be perceived in a sensational way, which is unfortunate,” said Mark Stapp, a longtime Arizona developer and director of the real estate development program at ASU’s W.P. Carey School of Business. “You get people who are making investment decisions who read these kinds of things without all of the facts and they’re going to make decisions based upon that risk.”

Stapp said the governor’s announcement should not be taken as a signal that development is going to stop in the Phoenix area, but he does expect it will mean some changes for the industry.

“We’re going to have to stop and think about how we’re going to continue to develop,” Stapp said.

Stapp said the majority of new housing construction in the Phoenix metro area in recent years has been on the outer edges of the Valley. Those areas, with less established water portfolios, are likely to be the most impacted by the new policy. So developers may now see more competition for space within cities, where water rights are more secure.

But infill development comes with challenges, said land use and zoning attorney Adam Baugh.

“Those infill sites have no problem obtaining water,” Baugh said, “But there’s a built environment already, neighbors around you, street limitations, drainage considerations, utility access. There’s a reason they’re some of the last sites leftover.”

That could create a need for legislation to change zoning rules, Stapp said.

“Our zoning ordinances and local politics don’t typically support the kinds of infill development that would accommodate the amount of growth we have to have if we’re going to shift from the periphery to the interior parts of the Valley,” Stapp said.

That’s a critical concern, Stapp said, because Arizona already has a housing shortage and will need to continue building more inventory to accommodate its growing population. He expects new limitations on some development could impact housing affordability in the region.

But he thinks rules to make development more sustainable will ultimately be good for Arizona’s economy.

“Even though there will be some players in this marketplace that will be hurt by it, the overall good of the metropolitan area is what we should be focused on and I think that’s what’s happening here.”

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