Arizona water agency regulations that restricted homebuilding were illegal, judge rules

Arizona’s water agency acted illegally when it created new water regulations in 2024 that restricted homebuilding in the Phoenix area, a judge ruled Tuesday.

In November 2024, the Arizona Department of Water Resources produced data showing the groundwater basin around the Phoenix metro area had low groundwater levels.

ADWR stopped issuing certificates to housing developers for new projects that rely on groundwater as their sole source.

The Homebuilders Association of Central Arizona filed a lawsuit against the department, accusing ADWR of overstepping its authority by creating new rules outside of the appropriate rulemaking channels.

Specifically, the lawsuit challenges ADWR’s choice to withhold certificates based on the idea of “unmet demand.” Unmet demand is a term ADWR uses to refer to the amount of water a user needs in a protected groundwater area, called an active management area.

In AMAs, groundwater use is subject to restrictions. Developers of proposed subdivisions must secure certificates from ADWR to demonstrate they have 100 years worth of water to sustain whatever project they want to build.

Unmet demand is the need for water that can’t be met because of the limited availability of groundwater.

The other ADWR rule relates to the concept of "depth to water.” That means the depth of a well from the ground to meet the top of the groundwater table.

ADWR applies the idea of unmet demand to say that if groundwater levels are too low in one part of the Phoenix AMA, then water restrictions need to apply accordingly to the entire AMA, not just the portion of the AMA where levels were measured.

So, under the rules, if a person in one part of the Valley is in a basin with especially low groundwater levels, then ADWR would hold off on allowing homebuilders to get certificates to build new subdivisions in all other parts of the Valley under AMA protections.

ADWR argued it was simply using fresh data to update existing rules. But, Maricopa County Superior Court Judge Scott Blaney sided with the homebuilders this week.

“It is beyond dispute that the AMA Wide Unmet Demand Rule and the AMA-Wide Depth-to-Water Rule implement law and policy,” Blaney wrote.

The new rules are now invalid, and ADWR will have to return to granting certificates to homebuilders the way it did before, even in areas with low groundwater supplies.

The Goldwater Institute, a conservative think tank, represented the homebuilders in the case.

“We're delighted that the court has struck down the bureaucracy's newfangled restriction on home construction—a rule that reduced the availability of homes and raised housing costs in one of the nation's fastest-growing housing markets,” Goldwater Institute Vice President for Legal Affairs Timothy Sandefur said in a statement. “This case is just the latest example of the dangers of the unelected, unaccountable administrative state. Here, bureaucrats decided to drastically rewrite Arizona rules governing home construction in ways that harmed not just Phoenix but all Arizonans. We're glad the court has made clear that no — they must obey the law, not rewrite it.”

ADWR released the following statement: “Although there is no final judgement yet, the Arizona Department of Water Resources intends to challenge the decision once it is final. We do not have further comment at this time.”