A major legal battle is unfolding in Arizona’s real estate market as the Goldwater Institute has filed a lawsuit against Governor Katie Hobbs’ administration over a controversial water rule. The lawsuit, brought on behalf of the Home Builders Association of Central Arizona, challenges a new groundwater regulation imposed by the Arizona Department of Water Resources (ADWR). This case could have serious implications for homebuilders, investors, and the overall affordability of housing in the state.
What’s the Lawsuit About?
At the heart of the dispute is a new groundwater rule introduced last fall. Previously, developers only needed to prove a 100-year water supply at the site of their projects. However, the ADWR’s new rule expands that requirement across entire water management areas—a move that significantly raises the bar for new developments.
The Goldwater Institute argues that this rule was put in place without proper legislative approval or the required rulemaking process. They claim that all agency rules in Arizona must be authorized by the state legislature, making the new water regulation invalid.
On the other side, Governor Hobbs’ office is calling the lawsuit a partisan attack, arguing that developers are simply looking for short-term profits at the expense of Arizona’s long-term water security.
Why This Matters for Real Estate Investors
For homebuilders and investors, this rule represents a major hurdle. Areas like Buckeye and Queen Creek, which are still working to secure their designation as official water providers, are among the hardest hit. Without this designation, they could face a near-total halt in new housing development—further tightening the already constrained housing supply in Arizona.
The impact is clear:
- Fewer new homes will be built, pushing home prices higher due to limited supply.
- Fewer investment opportunities in single-family developments, which many real estate investors rely on for rental income.
- Greater difficulty in meeting housing demand as Arizona continues to experience rapid population growth.
A Rule That Misses the Mark?
Critics of the water rule argue that it unfairly targets homebuilders while other high-water users, like data centers and golf courses, are not held to the same standard. Essentially, homebuilders are the only group required to replenish groundwater supplies, which could make single-family housing development even more difficult in an already challenging regulatory environment.
Additionally, the new rule does not directly conserve water—it simply makes it harder to build homes. Instead of stopping overuse, it could push development elsewhere, leading to even worse affordability issues in Arizona’s housing market.
What’s Next?
The lawsuit has been filed in the Arizona Superior Court, and the outcome could shape housing development for years to come. If the Goldwater Institute wins, the rule could be overturned, opening the door for new home construction. If the state prevails, developers may need to find new solutions to Arizona’s growing water challenges.
For real estate investors, this case is a must-watch. Water access has always been a critical issue in the desert Southwest, but when regulations start blocking housing supply, it’s a direct hit to the market. Stay tuned as this battle unfolds—it could determine the future of Arizona real estate.