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Water and Housing Needs Collide in California’s Severe Drought

June 28, 2021, 10:00 AM

Housing advocates and developers are warily watching California’s intensifying drought and what it may mean in a state that needs millions of new homes to house its residents.

Eighty-five percent of the state is in extreme drought. And in coastal Marin County, north of San Francisco, rainfall is at its lowest levels since records began 140 years ago.

It’s here where the state’s twin issues of housing stock and water availability are colliding. But it could be a harbinger of things to come for the rest of the state.

Additional housing puts more stress on water supplies. The housing and water conflict “piles one major policy crisis on top of another,” said Richard Frank, director of the California Environmental Law & Policy Center at University of California, Davis.

Gov. Gavin Newsom (D) signed executive orders in April and May declaring 41 counties in a drought state of emergency, giving water regulators more authority to manage water use and diversions.

At the same time, an estimated 120,000 affordable homes need to be built each year through 2030 to meeting housing needs, particularly for extremely low-income residents, according to a 2021 report from the California Housing Partnership, a nonprofit affordable housing group.

“I’m afraid I do think it’s going to become a bigger issue,” Partnership CEO and President Matt Schwartz said.

Stalled Project

Consideration of a moratorium on new water connections by the Marin Municipal Water District has already stalled one affordable housing project and could hurt another one 10 years in the making. The district has scheduled a July 6 meeting to discuss the moratorium.

Vivalon, a nonprofit in Marin County, is working on its final permits to build what’s called an healthy aging center, with support services for older county residents on two floors and 66 affordable apartments on four higher floors. The wait list has more than 400 names.

“The last moratorium was four to five years,” Vivalon Chief Executive Anne Grey said in an interview. “That’s just time we don’t have.”

The $48 million project will have trouble getting financing without water.

“It could stop the project dead in the tracks,” she said. “People are counting on this housing for the future of the community.”

A 74-unit multifamily complex already approved by the county for low- and extremely low-income residents is also in limbo, said Alexis Gevorgian, a managing member for AMG & Associates, a developer.

The project in Marin City was the first development proposal submitted to the county under new state laws meant to streamline housing developments. Gevorgian was hoping to break ground in three to four months.

But he needs a letter from the water district promising service. Without that, he said, “we can’t get our state and federal subsidies to build our project.”

‘Dire Situation’

Marin Water District held off on approving the moratorium after a lengthy meeting, where board members considered exempting affordable housing projects. A new vote hasn’t been scheduled.

“It’s important we not be increasing demand on a system that is already taxed,” Marin Water District President Cynthia Koehler said in an interview. “We just need to send a pretty clear signal this is a dire situation.”

Grey and Gevorgian are hoping affordable housing will get a pass or special consideration.

“I’m hoping the water district is sympathetic to our need,” Grey said.

During the 2012 to 2106 drought, California water regulators issued 21 orders barring water districts from allowing new connections and ordering existing promises of water availability null and void if building permits weren’t in place before certain deadlines.

The orders were issued in northern, central, and coastal California and targeted districts that had water rights that were junior to other users, such as agriculture and irrigation districts.

The same could happen during this drought, though it would likely affect smaller water systems and not large, urban suppliers where housing developments are typically based, said Darrin Polhemus, deputy director for drinking water programs at the State Water Resources Control Board.

“I don’t see a big impact on the state housing stock,” he said.

Legal Remedy?

During the last drought, the Hidden Valley Lake Community Services Water District west of Sacramento sued to overturn a state order prohibiting it from adding new connections beyond the more than 2,400 already in operation.

The district eventually won because they argued their supply came from groundwater and not surface water, over which the State Water Resources Control Board has regulatory power. The 2014 moratorium wasn’t lifted until July 2020.

Developers who secure water availability agreements from a local government like a county that then issues a moratorium could have some legal recourse, otherwise the cases are hard to fight, said a water rights and real estate attorney who spoke on condition of anonymity due to ongoing client representations.

Developers could, however, get special agreements in advance that they’re exempt from moratoriums, as a development in Half Moon Bay south of San Francisco was able to do several years ago, the California Housing Partnership’s Schwartz said.

For Grey, a lawsuit wouldn’t be possible for the nonprofit.

“We wouldn’t have the bandwidth to do that because it would be too expensive,” she said. “We can’t put our other services in jeopardy for an unknown outcome. It’s too risky.”

New NIMBY Threat

Housing is needed throughout the state. Where housing opponents usually cite traffic concerns, water concerns could become one more way to thwart development.

“Frankly, I think they’re looking for new bullets to tie things up,” Schwartz said. “I think the next one will be water.”

He is considering sponsoring a bill in the state legislature that would exempt affordable housing projects from moratoriums. Unlike single-family homes, affordable housing developments rarely have elaborate landscaping and come with water-efficient appliances and plumbing.

“We’ve got to get out in front of this,” Schwartz said.

Whether there’s a formal moratorium or not , developers could see pushback at the local level when it comes to building permits and NIMBY residents, said Steve Cruz, a consultant on water and resource issues for the California Building Industry Association.

Prohibiting new connections also won’t solve a problem and could force people into older homes that are less water-efficient.

“It’s not really addressing the problem,” Cruz said. “You’re not going to take us out of drought because you’re taking away new development.”

To contact the reporter on this story: Emily C. Dooley at edooley@bloombergindustry.com

To contact the editor responsible for this story: Chuck McCutcheon at cmccutcheon@bloombergindustry.com

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