Amid dangerous droughts, Arizona officials have attempted to address groundwater shortages by limiting development in the Phoenix metro area. Real estate interests have launched a dark money legal campaign to overturn the precedent-setting regulations.
For most of human history, a simple axiom for survival seemed to prevail: Don’t build houses where there is too little water. Amid dangerous droughts, Arizona officials recently enshrined that precept by limiting development in one of the country’s fastest-growing cities — a potential turning point for water policy in a region acutely threatened by climate change.
But now real estate interests have launched a dark-money legal campaign to overturn the precedent-setting regulations. Their goal: promising rent-strapped locals the American Dream of affordable homeownership in areas where officials have found there is not enough groundwater to sustain new suburban development.
Over the last decade, Phoenix has become one of the fastest-growing cities in the country, offering hundreds of thousands of new arrivals a relatively low cost of living and an influx of new tech jobs. As the population has boomed, developers have cashed in, rapidly pushing Phoenix’s notorious urban sprawl further into the desert.
It’s here — on the periphery of the Phoenix metro area — that state regulators have started cracking down on this development explosion. With regional water shortages only worsening under a historic megadrought, the local groundwater supply is even more precious and can no longer sustain the city’s planned development, officials say.
In the summer of 2023, the state of Arizona announced historic limits on development in the Phoenix area, prohibiting new development in some fast-growing Phoenix suburbs that would rely on quickly diminishing groundwater. It seemed a critical juncture for water policy in the Southwest — and a hint at the impending impacts of climate change on the desert city.
Arizona’s real estate interests have spent the last year and a half trying to find a way around the limits — and now, aided by dark money forces, they’re taking this battle to the courts.
On January 22, the Goldwater Institute, a dark-money-backed conservative think tank known to wage legal battles on behalf of corporate interests, filed a lawsuit on behalf of Arizona’s real estate lobby challenging the state’s groundwater models, in an effort to green-light new construction that state officials claim there is no groundwater to support in the long term.
The lawsuit is an escalation of a battle that has been ramping up between Arizona’s developers — who are accustomed to building new housing that relies on well water — and state officials trying to manage the regional strain on water resources amid chronic overuse in the Phoenix area.
It’s another example of the role that private interests will play in the looming water battles in the Southwest, which are only expected to intensify amid a climate crisis and worsening drought in the region.
The office of Arizona’s governor, Katie Hobbs (D), who has supported the groundwater models and pushed new water conservation efforts in the state, called the Goldwater Institute “partisan operatives working for their bad-actor developer donors and board members” in a statement to the Lever.
“This is nothing but a shameless and partisan attack by bad actor developers trying to get a short-term profit by pumping the water out from under Arizona families and farmers,” a spokesperson for Hobbs’s office said.
A Finite Resource
Underneath the sprawling desert metropolis of Phoenix lie underground aquifers, groundwater that makes up an important part of the area’s water supply — about one third of water usage across the Phoenix metro area. The other two thirds come from the Colorado River and local bodies of water, like the Salt River.
Groundwater, though, is a finite resource: once it is drained, it cannot quickly be replaced. “The groundwater down there is very old, tens of thousands of years old,” said Kathryn Sorensen, a professor at the Kyl Center for Water Policy at Arizona State University. “If you pump it out too quickly, it’s just gone.”
Projections show that Phoenix is already using this groundwater too quickly. Within one hundred years, wells will start to go dry, Arizona’s groundwater modeling shows. In all, the state estimates there will be 3.6 million acre-feet of unmet demand for the city’s groundwater over the next century — a shortfall of over a trillion gallons of water.
Arizona’s water regulators announced the shortfall when they released new groundwater modeling in 2023, which was updated again last fall. Because of the shortfall, officials said, they could not issue certificates to new housing developments that relied on groundwater.
“The department came out and said, [the groundwater] is all spoken for,” Sorensen explained. “When they did that, they closed off a path for housing development that developers were very used to relying on. And that upset them.”
Developers in Arizona have long been required to prove that their residential projects have a hundred-year supply of water (though there are still loopholes that can leave homeowners stranded without a water supply). Now the Phoenix aquifer, where wells are projected to begin running dry within a hundred years, can no longer be relied on for such a guarantee.
The development freeze mostly impacts new construction on the fringes of the Phoenix metro area. The city of Phoenix itself, which is designated by the state as having an assured one-hundred-year water supply, can still approve new development within its city limits. Still, its million-plus residents will face the same groundwater shortfalls in the years to come.
But it is Phoenix’s fast-growing outskirts that are the real hot spots for new housing construction. Development in these areas, which do not have their own water designation, has typically relied on well water. The sprawling city of Buckeye on the far-westernmost edge of Phoenix — by area, the second-largest city in Arizona — is one example. The municipality is growing rapidly, almost doubling in population since 2010, and yet relies almost entirely on groundwater.
Developers can still build in Buckeye — and other municipalities without a water-supply designation — but they will need to secure other, renewable water guarantees, like recycled water. And that increases developers’ costs.
“At a very fundamental level, this is a fight about what it costs to continue development on the fringes of the Valley of the Sun,” Sorensen said.
According to the Goldwater Institute and Arizona’s real estate lobby, the state’s groundwater shortfalls cost too much.
Arizona’s “Radical Water Agenda”?
The Goldwater Institute — named for its benefactor, the conservative luminary and former Arizona Republican senator Barry Goldwater — wages legal battles around the country on behalf of conservative and dark money interests. The group has been spearheading efforts to weaken the Indian Child Welfare Act, a landmark law meant to prevent the separation of Native families, as well as cases around the country that attack the rights of trans children in public schools.
Goldwater is a particularly powerful force in Arizona politics, often intervening to challenge cities and state regulators in court on issues like taxes and charter schools.
The group has deep pockets: It takes in hundreds of thousands of dollars a year from DonorsTrust, a dark money group tied to the libertarian political network founded by petrochemical tycoons Charles and David Koch. The institute is also leading the fight to strike down Arizona’s recently passed dark money transparency law, one of the strongest in the country.
Goldwater brought its most recent suit on behalf of the Home Builders Association of Central Arizona, the main lobbying arm of the state’s developers and builders.
The Home Builders Association takes in nearly $3 million a year from its members, according to its tax filings, and has worked frequently with the Goldwater Institute, which has represented the association in several cases over the years on matters like limiting local taxes and development fees. In response to inquiries from us, the group wrote that all questions about the case should be directed to the Goldwater Institute.
In a statement to the Lever, Jon Riches, Goldwater’s vice president of litigation, doubled down on the group’s opposition to state regulators.
“The Governor and her agency are pursuing an unlawful policy that is exacerbating the affordable housing crisis and putting homeownership out of reach for countless Arizonans,” Riches said, calling this a “radical water agenda.”
The lawsuit challenges the state’s groundwater modeling for the Phoenix area and argues that state officials do not have the right to deny development certificates on the basis of dwindling groundwater supply.
Their argument hinges on the idea that looking at the issue of groundwater across the entire Phoenix area basin is the wrong approach. Rather, Goldwater Institute attorneys wrote, certificates for development should be issued if there is estimated to be a one-hundred-year supply of groundwater directly below a property — even if wells elsewhere are running dry.
But there are good reasons to consider the Valley’s groundwater resources as a whole, experts say, despite Goldwater’s claim that this approach “defies common sense.”
“From the perspective of the state, the point of these regulations is to signal when we need to change the way we’re doing things,” said Sarah Porter, the director of the Kyl Center for Water Policy at Arizona State University. “Because at some point, we are using too much groundwater; we have become overreliant.”
Wells running dry was an important signal, Porter said — even if it was a well on the other side of the Valley.
But Arizona’s developers launched a pressure campaign to challenge the state’s water supply rules and groundwater modeling not long after state officials announced the development freeze in 2023, as records we obtained from the Arizona Department of Water Resources detail.
In one comment letter to water regulators from September 2024, which the Lever obtained, the Home Builders Association of Central Arizona lamented that the groundwater modeling had “adversely affected the residential for-sale housing industry disproportionately and unfairly.”
“Investment in Arizona housing is delayed, infrastructure is stalled due to lack of a clear path to development, and housing prices are escalating rapidly,” the organization wrote.
Developers hired a third-party environmental firm to create their own groundwater model for the Phoenix basin, which came to far more optimistic conclusions about the future of Phoenix’s aquifers, records show. The private model — which the Home Builders Association said led to “several adjustments” in the state’s own model — “wholly eliminates the unmet demand cited by the Department,” the September letter says.
Debating the accuracy of different models is something of a red herring, Sorensen said.
“Fiddling with the model does not change the fundamental issue, which is that there’s a limited amount of groundwater, and it is pretty much all spoken for, and if we’re going to continue to manage it wisely, then we need to start doing things a little differently,” said Sorensen.
The ongoing drought and Colorado River shortages further “compound that problem,” she added.
The Colorado River is beset by a drought that has lasted for more than twenty years — and shows no sign of slowing. Chronic overuse of the river, plus climate change, are only accelerating the water shortage on the river, and the states that rely on it have been forced to plan for significant cuts to their usage.
That makes preserving Phoenix’s aquifers even more critical — because much of the city’s water supply currently comes from dwindling Colorado River water.
But for Arizona’s developers, there’s a lot of money on the line. In the lawsuit, Goldwater attorneys described “enormous” harm caused by the freeze. “[Home Builders Association] members have lost and will continue to lose substantial financial resources because they are unable to develop their land,” the Goldwater Institute attorneys wrote.
It’s certainly true that other industries are not contending with the same groundwater restrictions as homebuilders; industrial and build-to-rent projects, which are proliferating in places like Buckeye, are not subject to the restrictions. Yet ultimately, such projects will face the same water shortages.
“When people say, ‘Arizona is running out of water,’ my answer is, ‘We’re not running out of water. We’re running out of cheap water,’” said Rhett Larson, a water attorney and professor at Arizona State University.
The fear is that this cost will fall on Arizona’s most vulnerable. Already, poor rural communities in Arizona are literally sinking as large agricultural users drain the groundwater beneath them. Some unwitting homeowners in the Phoenix area have bought property only to find their new home had no guaranteed water provider, leaving them to scramble to secure their own, expensive, water delivery.
The Goldwater lawsuit may now determine whether developers too must pay up.
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