Water Is the New Oil (Again): Shoring Up Water Supply, Curbing Demand Key to Texas’ Future Growth — Dallas Fed
Texas’ strong economic growth depends on a steady supply of fresh water. Without significant investment, however, the state could face shortages during future droughts. Supply can be bolstered with reservoirs, reuse and conservation. Additionally, a transition to market-based policies could allow price signals to more efficiently mediate supply and demand.
Water is essential to the expanding Texas economy and its ability to continue outpacing U.S. growth. However, Texas’ increasing demand for water is running up against its current supply, which is already stressed by extreme heat and more frequent droughts.
Funding for water infrastructure improvements has emerged as a priority for the Legislature during its 2025 legislative session. Absent changes to policy, Texans could face significant water shortages during droughts and constraints on future growth and economic development.
Gauging potential water shortages
The Texas Water Development Board produces the State Water Plan, a blueprint that addresses supply and demand for water during droughts. In 2022, the agency estimated that if a severe drought (“drought of record”) were to occur in 2030, the state would be short 4.7 million acre-feet—more than 20 percent of projected demand.
One acre-foot of water is enough to supply two to three homes for a year. It is a unit of measure equivalent to the amount needed to cover an acre with a foot of water.
Water resources and potential shortages are highly regional because of Texas’ size. In recent years, portions of East Texas experienced near- or above-normal rainfall, while the western half of the state was drier than normal (Chart 1).

Some Texas communities already face extremely low water supplies. Reservoirs in the Rio Grande Valley are below 25 percent capacity. As a result, Brownsville has limited car washing and landscape irrigation and drained city swimming pools to reduce water demand. The city of Mission has weighed a moratorium on new construction, and Corpus Christi has restricted residential yard watering to conserve water. Areas in central Texas, including Austin, have implemented similar measures as Lakes Buchanan and Travis hover around half capacity.
Rapid urban growth and depletion of the Ogallala Aquifer, a prominent water source for agriculture in the Panhandle and West Texas, will exacerbate the impact of future droughts. Under severe drought conditions, the shortage could total 6.9 million acre-feet per year in 2070 if the State Water Plan’s recommendations are not implemented.
Rules differ for groundwater, surface water sources
Texas agricultural users draw mainly from groundwater supplies, while municipal and industrial users rely on both surface water and groundwater.
Nine major aquifers and several minor ones hold groundwater. Texas assigns groundwater rights using the rule of capture, which gives landowners the legal right to the water under their property. Groundwater conservation districts can, however, require well permitting or regulate the pumping and spacing of wells.
Aquifers recharge naturally as rainwater percolates through the ground. Some aquifers recharge quickly; the Ogallala Aquifer does not. The State Water Plan projects groundwater availability will fall 25 percent from 2020 to 2070, partly because of the Ogallala’s depletion.
By comparison, the state owns surface water and grants water rights to users such as cities, utilities, firms and individual landowners. River authorities or watermasters administer water use on some river systems, including the Rio Grande, the Brazos and the Lower Colorado. During a drought, the users with the longest-standing permits tend to take priority.
Regulators manage surface water availability with storm and wastewater capture and reuse, stream diversion and reservoirs. Some metro areas are heavily dependent on surface water. The greater Dallas–Fort Worth area sources 89 percent of its water demand from surface water.
Water demand to grow as economy, population expand
The State Water Plan anticipates water demand increasing 9 percent during the half century ending in 2070, mostly because of population-growth-driven municipal water consumption.
Crop irrigation accounts for the majority of water use in Texas (Chart 2). Farmers and ranchers used 9.8 million acre-feet of water in 2020—mainly groundwater, and much of it from the Ogallala Aquifer.
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