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Some Arizona real estate pros say growth won’t stop just because of water restrictions

By Katherine Davis-Young
Published: Wednesday, June 14, 2023 - 4:05am
Updated: Friday, June 16, 2023 - 10:21am

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Afternoon aerial view of suburban homes in Surprise
Getty Images
Afternoon aerial view of suburban homes in Surprise, Arizona.

Sindy Ready is dropping in on a two-bedroom house she just started showing. This new listing has a lot of promise, she says. The property is listed at $445,000 and with demand like it’s been, she expects she’ll be able to sell it within a couple of weeks.

“They’ve redone the flooring, they’ve added crown molding, they’ve done painting and new shutters, and granite in the kitchen,” said Ready, who is vice president of the Arizona Association of Realtors and has been in the real estate business in Arizona for more than 20 years.

The house is in the suburb of Surprise, about 45 minutes northwest of downtown Phoenix.

“This was kind of the outskirts of town and actually now, it’s really not,” Ready said. “It’s just continuing to expand out west.”

But amid growing concern over Arizona’s water supply, there is now some question of how much farther into the desert suburban neighborhoods like this one will be allowed to expand.

To build a house in most of Arizona, developers have to show there’s enough water to last that property 100 years. But earlier this month, Gov. Katie Hobbs announced the findings of a new state report that shows groundwater in the Phoenix area may fall short of demand within a century. In response, she said the state would no longer approve new construction in places around Phoenix where groundwater is the only option.

Katie Hobbs water announcement
Katherine Davis-Young/KJZZ
Gov. Katie Hobbs announces Arizona will no longer approve construction in areas around Phoenix that depend solely on groundwater on June 1, 2023.

The news sounded alarming. After all, the Phoenix metro area has been among the fastest growing regions in the country in recent years. But even as the state takes historic steps to rein in sprawl, some in the real estate business say growth won’t come to a stop.

“My first reaction was, there’s going to be a lot of misunderstanding and fear," land use and zoning attorney Adam Baugh told KJZZ News.

He said a New York Times article about Arizona's new construction limits made some of his clients nervous.

“I think the first paragraph was ‘looming trouble in the West,’ and the other was, ‘likely means the beginning of the end,’” Baugh said.

Baugh said water scarcity is a real concern in a desert megalopolis, “but it also doesn’t mean the sky is falling.”

The governor does not plan to cancel about 80,000 outstanding development projects across the Phoenix area. And development in places with access to surface water or reclaimed water will be allowed to continue, too.

But, most new home construction around metro Phoenix is happening at its far edges, where suburbia meets the raw desert, said Mark Stapp, a longtime developer who directs the real estate development program at Arizona State University’s W.P. Carey School of Business.

Houses Under Construction in Goodyear, Arizona
Jack Johnson/KJZZ
Houses under construction in Goodyear, Arizona, in 2021.

“Those are the areas where the groundwater issue is the most serious and pronounced,” Stapp said.

That land is cheaper and it’s where developers can get the most space. Slowing or stopping those projects will mean a major shift for the industry.

“We’ve got to find other solutions, which are possible. However, it may also make development in the periphery much more expensive than it has been in the past,” Stapp said.

Stapp predicts the new limits on development approvals will mean some developers will turn back inward, taking on projects closer to Phoenix’s core, since longer-established cities have more secure water portfolios.

But Baugh said shifting from continued suburban sprawl to infill development will come with a different set of challenges.

“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,” Baugh said.

Baugh and Stapp both said the new groundwater policy doesn’t require halting all construction. In fact, they said, developers will have to find ways to keep building. The state housing department estimates after decades of explosive population growth, Arizona is already about 270,000 units short of demand.

Graph of the median sale price in the US

Ready said it’s one of the reasons home prices in metro Phoenix have recently been among the fastest-rising in the country.

“What’s happened over the last five years is we have more buyers than we have property, that’s really the reality of what we’ve been dealing with,” Ready said.

Slowing construction could cause housing costs to rise even more. But Ready said she doesn’t expect the news of Arizona’s water troubles to scare away the influx of buyers that have been streaming into the state.

“Every time we talk to buyers and they’re asking about water, really it is a piece of the puzzle for any realtor in the market,” Ready said. But, she added, “I think people are always going to want to live in Arizona, we have sunshine, we have beautiful hiking trails and biking trails and golf and tennis.”

For now, she said, the desert lifestyle continues to be a pretty easy sell.

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