Now one might ask why there is anyone trying to move development forward in California, given the impressive downward price trajectory of real estate over the last year. We’ll take as a given that such a big state can have pocket of opportunity even in a bad market.
But this article highlights an issue that will be coming more to the fore more frequently: water scarcity. In arid states like Arizona, developers and landowners have long recognized the importance of water rights. But most Americans are blissfully unfamiliar with the idea of fresh water as a scarce resource, let along that water shortage might turn out to be a more immediate problem than peak oil or rising food costs (although water scarcity will clearly play into the latter problem).
The UN, in its World Water Development Report, forecast in its downside scenario that by 2050, seven billion people will face water shortages, but corrective action could reduce that number to a mere two billion.
On a more mundane level, mounting water pressures will major and minor dislocations. A sign of things to come is a policy in California that requires new residential developments to have a 20 year water supply. A New York Times article describes the background and the consequences:
The state law was enacted in 2001, but until statewide water shortages, it had not been invoked to hold up projects.While previous droughts and supply problems have led to severe water cutbacks and rationing, water officials said the outright refusal to sign off on projects over water scarcity had until now been virtually unheard of on a statewide scale….
On Wednesday, Mr. Schwarzenegger declared an official statewide drought, the first such designation since 1991. As the governor was making his drought announcement, the Eastern Municipal Water District in Riverside County — one of the fastest-growing counties in the state in recent years — gave a provisional nod to nine projects that it had held up for months because of water concerns. The approval came with the caveat that the water district could revisit its decision, and only after adjustments had been made to the plans to reduce water demand.
“The statement that we’re making is that this isn’t business as usual,” said Randy A. Record, a water district board member, at the meeting here in Perris.
Shawn Jenkins, a developer who had two projects caught up in the delays, said he was accustomed to piles of paperwork and reams of red tape in getting projects approved. But he was not prepared to have the water district hold up the projects he was planning. He changed the projects’ landscaping, to make it less water dependent, as the board pondered their fate.
“I think this is a warning for everyone,” Mr. Jenkins said.
Also in Riverside County, a superior court judge recently stopped a 1,500-home development project, citing, among others things, a failure to provide substantial evidence of adequate water supply….
Throughout the state, other projects have been suspended or are being revised to accommodate water shortages, and water authorities and cities have increasingly begun to consider holding off on “will-serve” letters — promises to developers to provide water — for new projects.
“The water in our state is not sufficient to add more demand,” said Lester Snow, the director of the California Department of Water Resources. “And that now means that some large development can’t go forward. If we don’t make changes with water, we are going to have a major economic problem in this state.”….
An eight-year drought in the Colorado River basin has greatly impinged on water supply to Southern California. Of the roughly 1.25 million acre-feet of water that the region normally imports from that river toward the 4.5 million acre-feet it uses each year, 500,000 has been lost to drought, said Jeff Kightlinger, the general manager of the Metropolitan Water District of Southern California….
“We have bad hydrology, compromised infrastructure and our management tools are broken,” said Timothy Quinn, the executive director of the Association of California Water Agencies. “All that paints a fairly grim picture for Californians trying to manage water in the 21st century.”…
As the denied building permits indicate, the lack of sufficient water sources could become a serious threat to economic development in California, where the population in 2020 is projected to reach roughly 45 million people, economists say, from its current 38 million. In the end, as water becomes increasingly scarce, its price will have to rise, bringing with it a host of economic consequences, the economists said.
“Water has been seriously under-priced in California,” said Edward E. Leamer, a professor at the Anderson School of Management at the University of California, Los Angeles. “When you ration it or increase its price, it will have an impact on economic growth.”
Jojo 
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Yves,
I spent 20 years of my working life in both Northern CA and Southern CA-about evenly split. I realized after about five years there that the state did not have a water problem. They have lots of water. They have an allocation problem. Essentially, the Northern half of the state has abundant water while the South relies on rations from the North and Colorado River water.
Various interests need to come together in the state, put aside agendas and hammer something out to deal with the problem or they are going to reap a very bitter harvest.
I now live in AZ and while far from perfect, they did get a handle on the water issue some time ago. More give and take needed here as well but perhaps because it is a desert there does seem to be the political will to get something done.