Does California’s ongoing drought influence what types of properties your homebuyer clients are interested in?

  • Yes. (65%, 13 Votes)
  • No. (35%, 7 Votes)

Total Voters: 20

California’s ongoing drought casts a shadow over future home sales. Should buyers be worried about the future of the Golden State?

This article is the first in a three-part series on the effect of natural disasters on California home sales.

Drought: past and future

2012-2015 have been the driest years on record in California, according to Save Our Water, a state-sponsored water use program.

Most climate models point to a drier climate in the coming decades, with temperatures likely averaging four-five degrees warmer (Fahrenheit) by 2100. Hotter temperatures mean less winter snow, which supplies a third of California’s water supply in a regular, non-drought year. Thus, it’s important for residents to learn to live with less water now, since drought conditions are essentially guaranteed to continue in the long run.

Will California’s drought dry up the housing market?

While water is becoming more scarce, California’s population is continually growing. As our cities and farms put ever more strain on our increasingly limited water supply, the drought has crept into every corner of our lives. Water prices are rising, lawns go brown and doomsday scenarios are played out on the television and radio.

Choosing to buy a house in the midst of this record-breaking drought seems short-sighted to many and plain crazy to some. After all, what will the homebuyer do if their (proverbial or literal) well dries up?

However, unless the homeowner lives in a rural location, it’s extremely unlikely they’re going to lose water completely. The vast majority of Californians reside in metropolitan areas, where water use is less and systems for delivery are more efficient. In fact, even though the population continues to grow, total residential water use in metropolitan areas has actually decreased since peaking in 2007, according to the Los Angeles Department of Water and Power.

That being said, it is possible that rural communities will see a general decline in property values as buyers grow concerned about the ability — or increased cost — of obtaining water, particularly for rural homes with large amounts of land to water. But the majority of homes won’t experience a loss in property values due to the drought.

The burden of rising water costs

What most California homeowners can expect, however, is a steady increase in water costs. California legislators have responded to today’s drought by introducing a combination of fines and rebates to encourage more efficient water use.

Water departments across the state have added “drought fees” and have plans in place to increase rates in 2016. But it’s not just to encourage residents to conserve water.

It’s more about water suppliers trying to stay afloat and make up for money lost in the drought. That’s because residents are using less water in the drought and therefore paying less money to the water suppliers. But the suppliers still have to service their delivery systems and pay their employees, so increased rates are the natural solution.

Further, don’t expect these increased rates to go away anytime soon — they’re here to stay, and will only increase in the coming years.

Most city residents have small or no outdoor space, which is where the bulk of water use occurs. In fact, the drought may cause homes with small or no yard space to become especially attractive. As more of the state shifts from the expansive lawns of the suburbs to the more contained landscaping of cities, water use will decrease further, and rates will by necessity continue to rise. This won’t be a major problem for those with little outdoor space, but for those stuck in the suburbs or in rural parts of the state, rising water costs will be an ever-increasing burden.

Lawn/pool removal rebates

One way California aims to reduce water use is essentially bribery: homeowners who update their water system receive money from the state.

California offers rebates for replacing lawns and appliances with more water-efficient options. However, like most state-run programs, actually receiving these rebates can be a hassle. Residents complain of backlogs, hidden restrictions and long waits on the phone.

An example of some of the rebates available across California include:

Homeowners can search for more local water rebate programs here.

Rebate funds have already been exhausted in much of Southern California. However, homeowners can add themselves to a waitlist and be notified when more funds become available in Fall 2015. It’s important to note that in order to remain eligible for the turf-removal program, homeowners may not start the turf removal process until they have been notified of being moved off the waitlist and received approval for the rebate program. To get on the waitlist for the Metropolitan Water District of Southern California, homeowners can apply here.

Homeowners overwater at their own discretion

In April 2015, Governor Brown issued an executive order calling for a 25% reduction in non-agriculture water use by February 2016. This executive order also directs:

  • property owners to refrain from using potable water on the lawns of newly constructed homes unless they use drip or microspray systems;
  • water suppliers to change their rate structures (read: increase rates) to encourage water conservation by property owners; and
  • farm owners to develop and submit water management plans to the Department of Water Resources.

On a smaller scale, neighborhoods have begun to develop cultures of paranoia when it comes to water use. It’s called public drought shaming. On the one hand, it helps homeowners stop wasteful watering practices, but on the other, it creates rifts amongst neighbors. Drought shamers report homeowners or business that waste water, particularly those who hose down sidewalks or overwater their lawns, causing runoff. (There’s even an app for it.)

And if being publicly shamed for water waste isn’t enough, California may fine property owners up to $500 a day for water waste. Specifically, homeowners are prohibited from:

  • hosing off sidewalks and driveways with potable water;
  • washing cars without using a water shutoff nozzle;
  • over-watering lawns, causing runoff onto the sidewalk or street; and
  • using potable water in outdoor, non-circulating water features.

The threat of fines will certainly deter homeowners from overwatering, which is important since about half of water-use per household goes into outdoor projects like landscaping.

However, the biggest user of water in the state is the agriculture industry. Agriculture consumes 80% of California’s useable water supply and residents along with towns and cities consume 20%.

That’s not to suggest that reducing residential water waste isn’t important, it’s just not as important as regulating agricultural water use. For a solution, researchers tend to look to long-time drought survivor, Australia. There, farmers are allotted water shares, which they can trade with other famers in a water market, similar to how shares are traded on the stock market.

Further, Australia’s fervent campaign against water waste has regular residents using half of what the average California resident uses.

Selling a home in the drought

The drought causes a particular issue for home sellers. Buyers aren’t lured by brown lawns or empty swimming pools. What’s a seller to do?

If the seller has a pool, removing it will usually help the home sell faster. Most buyers don’t want to deal with the cost of maintenance or the social burden of all that water in their backyard during a drought. But pool removal is very expensive, costing upwards of $10,000 to do it right. But if a seller’s home is sitting on the market for some time with no reasonable offers, pool removal may be something the seller considers.

For other landscaping, it all depends on what the seller is starting with. If they have grass, they can water it — carefully avoiding overwatering — sufficient to keep the grass some shade of green. A brown lawn can cost the seller thousands in the eventual sale price, as buyers assume the seller is neglectful not just of their lawn but their home, too.

Editor’s note — During state-declared drought emergencies, local governments cannot impose fines on homeowners who have unwatered or brown lawns. [Calif. Government Code §8627.7]

Better, a seller can consider installing drought-friendly plants. This includes succulent plants, rocks and cacti. There are also some nice flowering desert plants they can plant, like desert mallow and desert marigold. For a handy list tailored specifically for agents to download and distribute to real estate clients, see: Save on your water bills with hardy native landscaping.

Another option: the seller can tear up the old lawn and install artificial turf. However, this is not ideal for all buyers, as it requires maintenance and isn’t tasteful to everyone. This is a better option for a homeowner who likes the look of grass but not the cost of watering, and plans to live in their home for a while. Here’s a pro and con list to decide whether artificial turf is the right decision for your real estate clients: Should you install artificial turf?

Agents with buyer clients: Are homebuyers concerned about the drought’s effect on their home purchase and has it affected what types of properties they’re interested in? Share your stories in the comments below!

Stay tuned for the next article in this series, which will explain how sea level rise will influence the future of California real estate.