Signals: S7 Water Stress & Allocation · S9 Zoning, Codes & Land Use · S10 Migration & Demographic Shift
Arizona’s own groundwater model projects 4.86 million acre-feet of unmet demand in the Phoenix Active Management Area over one hundred years, roughly 4% of projected groundwater demand.
On June 1, 2023, the state stopped approving new determinations of Assured Water Supply based on groundwater across that area. Three years and two court rulings later, the Department of Water Resources has not changed that position.
The binding constraint on America’s fastest-growing desert metro is not capital, and it is not demand. It is whether you can legally deliver water to the door.
Market Signal
Understand the mechanism before the litigation, because the mechanism is what travels.
Under Arizona’s 1980 Groundwater Management Act, a developer inside one of Arizona’s Active Management Areas, eight of them as of September 2026, cannot simply drill a well and build. They must demonstrate a hundred years of assured supply before they can sell lots. Most states have no equivalent test. That is what makes Arizona a leading indicator rather than a local curiosity.
When the state’s updated model said that assurance no longer held for groundwater-only growth, the Department of Water Resources stopped issuing determinations on that basis. Its published position today is unchanged: “the State will not approve new determinations of Assured Water Supply within the Phoenix AMA based on groundwater supplies.”
Existing Certificates and Designations were untouched, and developments inside them may continue to expand. Municipal providers holding a Designation kept serving new development from their approved portfolios. This was never a building moratorium.
The city of Phoenix is the clearest illustration. It draws roughly 60% of its water from the Salt and Verde rivers through the Salt River Project and about 40% from the Colorado River through the Central Arizona Project. Groundwater is about 2%.
So the freeze did not hit Phoenix. It hit the unincorporated groundwater-dependent edge, principally Buckeye and Queen Creek, where land had been bought, entitled, and financed on the assumption that certificates would issue on schedule.
Put yourself on one of those parcels. Overnight, the most important number in the deal is not the cap rate or the rent comp. It is a regulatory finding about an aquifer. Carrying costs keep running, the lender’s clock keeps ticking, and the exit assumes a buyer who can actually build. A freeze like that doesn’t delay a project. It can strand the basis.
Case Study
What happened next created a market, and then a lawsuit.
In November 2024, the Department finalized a rulemaking creating an Alternative Path to Designation of Assured Water Supply, effective November 25, 2024. The intent was to let providers grow incrementally on non-groundwater supplies while reducing groundwater mining.
Under the amended R12-15-710, the hundred-year volume “shall be further reduced by 25 percent of the 100-year volume of each New Alternative Water Supply.” That is a haircut, not a qualifying threshold. A provider had to bring roughly 133% of the demand to be credited with 100%.
Alongside it, the legislature passed Senate Bill 1611, the Ag-to-Urban program, signed June 30, 2025. It converted retired agricultural water rights into development credits using conservation multipliers of 150 in the Phoenix area and 100 in Pinal, capped credits at sixty times mean annual groundwater use, and will repeal itself on January 1, 2036. Senate Bill 1335, effective September 12, 2026, lets applicants keep irrigating for up to two years after applying.
That is the birth of a tradable input. When groundwater alone will not certify a project, the missing supply has to come from somewhere, and retired agricultural water, treated effluent, and recharge credits each acquire a price. Water stops being a site condition and becomes something you assemble, like a capital stack.
The verified scale of it so far is smaller than the headlines. The first Ag-to-Urban approval, on December 9, 2025, covered 825 homes for Forestar Real Estate Group in Buckeye, saving more than 437 million gallons per year against the land’s historic agricultural use, an 80% reduction.
A figure of 60,000 homes circulates widely. It is EPCOR’s own statement about its alternative-path designation covering Buckeye and Surprise, a regulated utility’s estimate of its service-area build-out capacity.
Then the Home Builders Association of Central Arizona sued, and won twice.
On April 21, 2026, in HBACA v. Arizona Department of Water Resources, Maricopa County Superior Court case CV2025-002623, Judge Scott Blaney vacated the two standards the Department had been applying to certificate review. The holding was procedural. The court found these were rules under the Administrative Procedure Act and that the Department had not promulgated them properly. The court did not find the hydrology wrong.
In early June 2026, the same judge voided the 25% alternative-supply provision, holding that “ADWR has in effect attempted to rewrite the governing statute at the agency level” and that the statute “plainly requires that applicants show that water will be continuously available to satisfy the water needs of the proposed use for at least one hundred years.”
Here is why “development is back on” is the wrong read. The Department’s published position has not moved. It has released a further model revision, a Version 3 update in 2026, that re-bases projected existing pumping on the average of the last five years of pumping, and no appellate docket has appeared. More importantly, the June ruling removed the alternative pathway while leaving the underlying determination standing. Local reporting on the day noted it might leave developers no route at all in water-scarce areas.
Notice what the litigation itself does to value. When the rule can flip on a court schedule, the entitlement carries a legal risk premium on top of the hydrology. No institutional buyer underwrites a parcel whose right to build is still being argued.
Let’s look at Cape Town for a different example. In 2017 and 2018, a metropolitan municipality of roughly 4.2 to 4.4 million people came within about eleven weeks of a projected “Day Zero” before rationing to 25 liters per person per day pushed the date away. The taps never ran dry. What changed permanently was how the city prices growth. Markets reprice fastest when a near miss makes the unthinkable concrete.
Strategic Implications
The certificate is the asset. On a groundwater-only parcel, the binding question is not price or zoning. It is whether the water can be certified at all, and that question now has a litigation history attached.
Read the ruling before you read the headline. Two trial-court wins on administrative- procedure grounds do not mean the aquifer is fine, and they are not final. Ask specifically whether the Department has changed its published position. As of today, it has not, but by the time you read this, that may have changed.
Underwrite the alternative-water cost as a line. Effluent, recharge credits, and retired agricultural rights all have prices now, and the Ag-to-Urban multipliers tell you what the state thinks a conserved acre-foot is worth. Where a project needs them, that cost belongs in the basis, not in a footnote.
Discount vendor build-out estimates. A utility saying its designation “unlocks the potential to support 60,000 new homes” is describing capacity, not permits. The number of homes actually approved under the legislative program to date is in the hundreds.
Put the Colorado River tier in the model. Reclamation’s August 2025 determination confirms a Level 1 Shortage governing Lake Mead for calendar 2026, reducing Arizona’s apportionment by 512,000 acre-feet, about 18%. On August 21, 2026, Interior finalized a ten-year decision framework for 2027 and 2028 that cuts Lower Basin deliveries by 1.25 million acre-feet in calendar 2027, with Arizona’s share at 760,000 acre-feet under the Lower Basin states’ proposed sharing agreement.
Future Signal
The shift to watch is water moving from a utility question to a priced, tradable input underwritten beside the dirt.
Today the two are appraised separately. Land is a real estate question, and water is a service question. In a market where a parcel without assured supply may never be buildable, the water right and the dirt converge into one asset with one value. The parcel with a designation simply becomes a different asset from the one without.
The pattern generalizes faster than most investors expect. Texas groundwater conservation districts, California’s Sustainable Groundwater Management Act, and stressed basins across the Mountain West are all moving toward the same place at different speeds. Proof of water supply becomes a condition of development.
The investor who learns to read a water designation the way they already read a flood zone will not be surprised when the next desirable submarket quietly stops issuing permits. The one who assumes a favorable court ruling settled it will be.
As always, KNOW YOUR SIGNALS and BE CLIMATE READY!
Jamie
Run this on your own deal
The CRDF Signal Tracker™ built for this brief lets you log water, code, and migration signals in your own markets, translate a designation status into financial impact, and score which parcels in your pipeline carry entitlement risk you have not priced. Free, no signup: Brief 28_CRDF Signal Tracker™ (xlsx)
New to the framework? The blank master CRDF Signal Tracker™ and Deal Stress Test™ workbooks are at climatereadyre.com/tools.
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Sources
Every figure above, with the date the data covers, the date it was published, and the date I verified it.
Unmet groundwater demand — 4.86 million acre-feet over one hundred years in the Phoenix Active Management Area, roughly 4% of projected groundwater demand; new determinations based on groundwater halted from June 1, 2023
Arizona Department of Water Resources, Phoenix AMA Groundwater Supply Updates · Data as of Jun 2023, projected to 2121 · Published 2023 · Accessed Aug 2026
A modeled projection, not an observation. Existing Certificates and Designations were unaffected and may continue to expand, so this is not a building moratorium. Arizona has eight Active Management Areas, being Prescott, Phoenix, Pinal, Tucson, Santa Cruz, Douglas, Willcox, and Ranegras Plain, per the Department of Water Resources Active Management Area overview. The Department released a Version 3 model update in 2026. The AMA count is a moving number: the Willcox AMA was designated by Director order on Dec 19, 2024, effective Jan 8, 2025, and Ranegras Plain by Director order on Jan 9, 2026, so the count at the June 2023 freeze was six.
Phoenix water portfolio — roughly 60% from the Salt and Verde rivers via the Salt River Project, about 40% from the Colorado River via the Central Arizona Project, and about 2% groundwater
City of Phoenix Water Services, Drought and Shortage Operations · Data as of 2026 · Published 2026 · Accessed Aug 2026
The alternative pathway — effective November 25, 2024, crediting only 75% of each new alternative water supply, a 25% reduction that requires roughly 133% coverage
Arizona Department of Water Resources, Notice of Final Rulemaking, R12-15-710 · Data as of Nov 2024 · Published Nov 25, 2024 · Accessed Aug 2026
Subsection (H) of this rule was voided in early June 2026.
Ag-to-Urban — Senate Bill 1611, signed June 30, 2025; conservation multipliers of 150 in the Phoenix AMA and 100 in the Pinal AMA; credits capped at sixty times mean annual groundwater use; program repeals January 1, 2036
Arizona State Legislature, SB1611 Senate Fact Sheet · Data as of 2025 · Published Jun 30, 2025 · Accessed Aug 2026
First Ag-to-Urban approval — 825 homes for Forestar Real Estate Group in Buckeye on December 9, 2025, saving more than 437 million gallons per year, an 80% reduction against historic agricultural use
Office of the Arizona Governor · Data as of Dec 2025 · Published Dec 9, 2025 · Accessed Aug 2026
The 60,000 homes figure — a regulated utility’s estimate of its own alternative-path designation covering Buckeye and Surprise
EPCOR, EPCOR Earns Historic ADAWS Designation · Data as of Oct 2025 · Published Nov 6, 2025 · Accessed Aug 2026
A vendor statement about its own service area, describing capacity rather than approvals, and resting on a rule voided in June 2026.
The litigation — HBACA v. Arizona Department of Water Resources, Maricopa County Superior Court CV2025-002623; the two AMA-wide standards vacated April 21, 2026 on Administrative Procedure Act grounds; the 25% provision voided in early June 2026
Gammage & Burnham, legal alert on the summary judgment and Holland & Hart on the second ruling · Data as of Jun 2026 · Published Apr 22 and Jun 24, 2026 · Accessed Aug 2026
Read from counsel of record and the litigating institute rather than from the signed judgments. Both rulings are trial level. No appellate filing had appeared as of August 2026, and the plaintiff coined the two standard names rather than the agency promulgating them.
Colorado River shortage — a Level 1 Shortage Condition governs Lake Mead operations for calendar 2026, reducing Arizona’s apportionment by 512,000 acre-feet, about 18%
US Bureau of Reclamation · Data as of Aug 2025 · Published Aug 15, 2025 · Accessed Aug 2026
Applies to calendar 2026. Reclamation’s August 21, 2026 release on 2027 and 2028 operations sets Lower Basin reductions at 1.25 million acre-feet for 2027, with Arizona at 760,000 acre-feet under the Lower Basin states’ proposed sharing agreement.
Cape Town — a metropolitan municipality of roughly 4.2 to 4.4 million people came within about eleven weeks of a projected Day Zero of April 12, 2018, announced January 23, 2018; rationing held at 25 liters per person per day
City of Cape Town, Census 2022: Cape Town Trends and Changes and NOAA Climate.gov · Data as of 2011 to 2022 · Published Jun 29, 2018 and October 2023 · Accessed Aug 2026
Population interpolated between the 2011 census at 3,740,025 and the 2022 census at 4,772,846. Day Zero moved away from April 12 and never closed the taps.
Commentary and analysis only. Not investment, financial, legal, tax, or professional advice. CRDF tools are illustrative; examples are composites drawn from public data. Do your own due diligence and consult qualified professionals.
I run this analysis on specific deals. If you hold entitled land on a groundwater-only edge and want the designation risk priced before your next capital call, book 20 minutes.
Jamie Wolf, MBA — Founder & Publisher, Climate-Ready Real Estate Investing, © 2026, CR REI Holdings LLC