In some communities, water can add tens of thousands of dollars to the price of a new home. Conservation-oriented tap fees may help boost affordability while using less H2O.
In Denver, a prospective homebuyer touring a newly built single-family home might not realize exactly what is contributing $10,450 to the sticker price. That same thing might account for an extra $35,000 for a new house in the latest Wiggins subdivision, or $32,000 in Crested Butte. At a sleek new three-bedroom in Loveland, the add-on might be $55,600.
It’s water — and though the details vary by location, anywhere you look for new construction in Colorado, particularly along the Front Range, it’s going to cost you. For prospective homebuyers already navigating an expensive real estate market, those fees might be the difference between closing on a home of their own and endless scrolling on Zillow.
A home needs water, of course: enough to satisfy every washing machine load, toilet flush, dishwashing session, and lawn or garden sprinkling demanded by its inhabitants. In an arid place like Colorado, that water often doesn’t come cheap, and there isn’t always enough of it to go around. This poses a challenge for developers, who must nail down a water supply before any new housing can even break ground. It’s perhaps an even bigger burden for buyers, who typically end up shouldering the cost passed on from developers to acquire and connect the water to their new homes. Still, with water fees so high, how can developers possibly bring anything more affordable to market?
Water is just one variable in the complex calculus needed to make building new houses pencil out. But in Colorado, it’s a significant one. There’s a simple reason why water is so expensive: It’s in short supply and high demand. Traditionally, people have approached the question of water availability from the supply side only — building new reservoirs or purchasing additional water rights to provide for new development. But increasingly, forward-thinking municipalities, water utilities, developers, and builders are looking to tackle the twin challenges of out-of-reach home prices and water scarcity by looking to the demand side as well. Reduce how much water any given house needs, and you can reduce the water costs — and therefore, the total price of the home — while also developing more sustainably.
The whole complicated issue of housing, water and money begins with a simple idea: We shouldn’t build new housing unless we know for sure that we have enough water for it. In Colorado, that notion is encoded in the law as “water adequacy.”
“Water adequacy is a state statutory requirement to ensure that before new development occurs in Colorado, the water provider, and the [local government], and the developer are working together to ensure that there is sufficient, adequate water supply to cover the new demands of that development,” explains Lindsey Rogers, municipal conservation policy manager at Western Resource Advocates (WRA). This applies to any place that needs a development permit — if a government decides that a permit is needed, the developer must demonstrate that it has a plan to supply enough water to meet the development’s needs.
Dana P. Smith
Enter the water dedication requirement. This is the amount of water that a local provider determines is adequate to supply a new home, multifamily dwelling, or entire subdivision, usually expressed in acre-feet per year. It’s the developer’s responsibility to provide that volume of water to the utility before any construction begins. Sometimes, that means acquiring new water rights and dedicating them to the provider. Sometimes, it’s paying the provider a fee (called a cash-in-lieu fee) so that the provider can acquire new water. Every municipal water utility or water district sets its own water dedication requirement. Naturally, the more water that must be dedicated, the higher the price tag for the developer.
Acquiring water alone isn’t enough to get the faucets flowing in a brand-new home. The water provider also has to lay out infrastructure to connect new builds to the existing system, and sometimes, to pull off system upgrades, too. So the provider charges a fee for that. Infrastructure fees, plus the cost of satisfying the water dedication requirement are together colloquially called tap fees (or system development fees). Those tap fees influence where new development can happen, how much those homes cost, and even how water-efficient each one can be.
“If you go talk to any land developer or homebuilder today in Colorado, water is the biggest issue as to where you can develop across the Front Range,” says Brock Smethills, president of Sterling Ranch Development Company. “It’s a very scarce resource.” Scarce usually goes hand in hand with “expensive,” and indeed, Colorado has some of the highest tap fees in the country. These charges vary widely by water provider, with the priciest in Northern Colorado, especially if the only available supply comes from shares of the Colorado-Big Thompson Project. In 2025, each contract unit from that federal water diversion, estimated to yield 0.7 acre-feet, cost $57,500 per unit, down from a high of $67,000 in 2023.
“Water is the biggest cost in any jurisdiction,” says Ted Leighty, CEO of the Home Builders Association of Metro Denver and the Colorado Association of Homebuilders. “It factors in big-time.” A 2025 analysis from HBA Metro Denver found that tap fees account for 60% of total developer fees, on average, across the Denver area.
Water providers point out that fees are high because water in Colorado is highly sought-after — and therefore, expensive. “There’s limited water along the Front Range at the end of the day,” says Amber Kauffman, district manager at Little Thompson Water District. “If there were fewer people chasing water, or a bigger bucket of supply, then the prices would be lower.”
Developers and builders generally pass on those fees directly to the homebuyer. “If we can’t cover our costs, and there’s not a margin for profit, then we can‘t reinvest in the next project,” Leighty notes. “A lot of that has to be borne by the ultimate homeowner so we can continue building the next one.” A single-family house that otherwise would have cost $500,000 might list for $550,000 — the kind of upcharge that could squeeze people shopping for a home, or even knock it out of their budget altogether.
Renters can’t escape tap fees, either, as the owners of multifamily buildings usually need to pass them on, too. Metro West Housing Solutions, the housing authority for Lakewood, develops, builds, and manages affordable rental units. “The more that it costs us to build, the higher we have to set those rents,” says Brendalee Connors, chief real estate officer. “Then we’re unable to help serve the folks who have much lower incomes. It just goes downstream. The higher costs mean we are less effective at serving the people who could most use it.”
An apartment complex by Metro West Housing Solutions.
Courtesy of Metro West Housing Solutions
High tap fees can shape what kind of houses get built, in sometimes surprising ways. For example, costly water fees can actually lead to bigger, more expensive homes. “The more the tap fee is, the higher price point the house needs to be for the homebuilder to make any money,” Smethills says. Say a provider charges a flat tap fee, no matter what the house’s size or water efficiency might be: The developer doesn’t have much incentive to build smaller, more efficient homes. “The consumer needs more square feet to justify the price of the house, so you end up with a bigger house,” Smethills says. “It’s a vicious cycle.”
And sometimes, high tap fees have more predictable consequences. In 2023, Metro West Housing Solutions started planning for a new apartment complex that would serve people making between 20% and 70% of the area’s median income. The 44 apartments, in two buildings, would rent for between $355 (for a studio) and $2,000 (a three-bedroom) a month. But the housing authority ran into several roadblocks, including a tap fee from the local water district that amounted to $14,000 per unit. It ultimately had to scrap the development in 2024.
Water was a big reason why Metro West couldn’t build the new complex. “It was deeply disappointing,” Connors says. “That was 44 families that will now not have housing that is affordable to them, in a neighborhood with good opportunities. That’s the hardest thing.”
Eye-popping as they can appear, tap fees only account for a small chunk of a new house’s listing price. Developers also face wastewater costs, building permit fees, and use taxes. And a whole lot more goes into the cost of building a home, from lumber to labor to landscaping. But water costs do have an important place on any developer’s balance sheet. And, increasingly, water providers are realizing that tap fees can be a powerful tool in shaping the kind of new homes a community needs — both more affordable and much more efficient in using Colorado’s most precious resource.
The Sterling Ranch community in Littleton, Colorado. Photo courtesy of Sterling Ranch
Today, looking at the 3,000-and-counting new houses anchoring a patch of grassland on the far southwestern edge of the Denver metro zone, you’d never know the area was once considered too hard to develop. Conventional wisdom said acquiring the surface water needed to supply homes on the old Sterling family ranch, which sits between Chatfield and Roxborough state parks, was just too expensive, and the non-renewable groundwater below the ranch couldn’t support further development. Harold and Diane Smethills begged to differ.
When the couple closed on the property in 2008, Douglas County required developers to dedicate .75 acre-feet of water per home, per year, which translated to an exorbitant tap fee and would have pushed house prices far too high. The new owners thought they could build homes that wouldn’t need anywhere near that much water, so they successfully negotiated it down to .4 acre-feet per home, per year. “It was the only way to make the housing, and the tap and connection fees, reasonably affordable,” says Brock Smethills, Harold and Diane’s son. Plus, “It’s the responsible thing to do to conserve water.” That idea — use less water, pay less in water fees — made the master-planned community of Sterling Ranch possible. And it’s starting to catch on.
“What we’ve been seeing in Colorado in more recent years is a transition toward conservation-oriented tap fees,” says WRA’s Rogers. “That’s where utilities are using other factors to try to get a closer approximation of the actual water use of an individual home or business.” Water providers vary in how they’re approaching the idea, but they might offer discounted tap fees for a smaller home footprint and/or fewer bedrooms and bathrooms. And because the lion’s share of a home’s water footprint usually goes to outdoor use, especially watering lawns, discounts aimed at reducing that are particularly effective. In practice, that might look like a slashed fee for building on smaller lots, shrinking a home’s irrigable area, or using drought-tolerant plants in landscaping. By 2019, developers were paying conservation tap fees for 60% of new single-family homes across the Front Range, and the number is likely increasing, says Benjamin Edelstein, an assistant professor of economics at Loyola University Chicago who has studied Colorado’s tap fees.
Building smaller homes on smaller lots is one of the best ways to keep water use down for the long term, Edelstein says. “If you can induce developers to build on smaller lots, that physically constrains how much water [households] are likely to use, now and 50 years in the future.”
Dana P. Smith
Developers say conservation-oriented tap fees are critical if communities want to see smaller, more affordable homes. “We simply can’t build small homes if every [tap fee] is $80,000 to begin with, no matter what the size of the home or lot, or whatever kind of landscaping,” Leighty says. The Little Thompson Water District, which serves a predominantly rural area in Northern Colorado, has a menu of tap fees ranging from $42,500 to $187,500 — these are higher than many of their peers. The cost is based on the new home’s lot size and whether or not the developer uses low-water plants and soil amendments in its landscaping. Kaufmann says that in most cases, the eventual homeowners of those conservation-minded builds do use less water than larger homes with bigger lawns (and they face a hefty fee if they exceed their expected use). Otherwise, “we wouldn’t have enough water for everybody,” she says. Municipal water utilities in Aurora and Castle Rock have also been refining their conservation tap fees over the past few years. And last year, Colorado passed a law, HB25-1211 requiring water districts to consider tap fee discounts for conservation measures in new homes.
In the Sterling Ranch community in unincorporated Douglas County, aggressive water conservation has been a crucial part of making development work. Each building has two water meters, one for indoor use and one for outdoor; homeowners pay more for outdoor use, incentivizing conservation. Each home also comes with a smart irrigation controller that syncs to current weather conditions to optimize efficiency (read: No watering in the rain). Sterling Ranch Development Company also partnered with Denver Botanic Gardens to provide a list of approved low-water-use plants for builders to incorporate into landscaping. And the community is home to the state’s first rainwater harvesting pilot project; the collected rainwater goes toward irrigating common areas.
After gathering water-use data for five years, the company proved its houses were tapping far less than .4 acre-feet per year, and convinced the county to drop its dedication requirement to .26 acre-feet for a single-family home on a detached lot — further reducing development costs. Sterling Ranch, which is zoned to grow to a maximum of 16,050 homes, now offers options ranging from 1,100-square-foot, two-bedroom townhomes (going for $415,000) to 6,500-square-foot standalone houses (listed at $1.6 million), plus apartments that rent from $1,700 to $3,000 per month. “Every dollar we spend on water, translates to another dollar you pay in cost of your house,” Smethills says. “Wasting money on water that’s not going to be used is not a good way to lower housing costs.” Nor does it help people conserve a precious resource.
Tap fees are evolving alongside new data and new conservation rules, so developers and water providers have needed to iron out a few wrinkles. In 2016, Castle Rock Water debuted lower tap fees for developers who created water-efficiency plans for new homes. But when the town passed an ordinance restricting turf for all new houses in 2022, the utility retired those discounts. Similar turf restrictions became law across the state last year, when the legislature passed limits on “nonfunctional turf” (that is, not used in places like athletic fields or playgrounds) and particularly thirsty types of grass in all new multifamily housing projects with 12 or more units. But as conservation measures that used to be voluntary become mandatory, developers say that discounts should stay in place.
“We know that we’re going to use less water now, so let’s pass those savings along,” notes Leighty. “[Otherwise], we’re saying we don’t want it to make sense for us to build a smaller, more affordable home. Let’s look at water intensity, low-flow toilets, what is the bathroom count, how many bedrooms are there, how many people might be living there, what the landscaping looks like. Then let’s reduce those tap fees so we can bring on the reward of less water usage.”
Castle Rock, Colorado.
Courstesy of Eldorado Water
Castle Rock Water, for one, recognizes that concern and worked with the town council to pass new tap fee discounts in April, says Director Mark Marlowe. The new fee structure ties the water resources fee to the square footage of the house. “All the data we’ve looked at shows a fairly strong correlation between water use and house square footage.” Castle Rock now offers deeply discounted tap fees for smaller homes, for example, the system development fee for homes under 2,000 square feet is $21,750, and $59,658 for homes from 7,500 to 7,999 square feet.
Another wrinkle that water providers and developers have to consider is that water-efficiency measures, like smart irrigation technology or water-wise landscaping, can cost more upfront than the status quo. But some argue that conservation pays off in the long run. “If houses being built today were using the same amount of water as houses built 20 years ago, we’d have to charge much higher system development fees to obtain that water,” Marlowe says. “We have limited water supplies, and new supplies are very expensive.”
Smethills predicts that water efficiency at Sterling Ranch will keep the community’s tap fees steadier, while other water providers will need to jack up their charges to accommodate new growth. “It’s the more responsible, practical thing to do,” he says.
Tap fee discounts aren’t the only way communities are using water to bring down housing costs. In Buena Vista, officials have come up with an innovative policy that offers water as a carrot to entice certain kinds of development. “We knew we only had so much water,” says Joel Benson, the town’s former senior policy advisor. “We have to assume we don’t have enough [water] for everybody. Let’s try to encourage the use of that water to fulfill our needs as a community.”
South Main, Buena Vista, Colorado.
Courtesy of South Main
Buena Vista’s leaders calculated the water supply it had available (in single-family home equivalents, or SFEs), then distributed it into eight “buckets.” Infill was allocated 73.4 SFEs, with affordable, attainable, and workforce housing next at 55.6 SFEs (the other buckets include smaller, non-infill developments; emergency use; economic development; multifamily rental housing; and public, nonprofit, or institutional development). Anything else fits in the general development category, allocated 91.3 SFEs, or 24% of the total water supply. Since the policy went into effect in 2023, one major subdivision project has tapped into the affordable housing bucket.
Developers pay the same water dedication fee to Buena Vista Water, regardless of which bucket they’re using. But the utility is considering an amendment that would charge a higher fee to general development, and use the difference to support more affordable housing.
Despite its water scarcity, Colorado remains a desirable place to live, with modest job growth — and a state that needs to add tens of thousands of new housing units every year to keep up with demand. The more of them equipped with moderate square footage, low-flow toilets, and xeriscaped yards, the less water they’ll each use. That kind of smart planning will stretch the state’s limited water while simultaneously adding to the stock of affordable homes that Coloradans so desperately need.
Elisabeth Kwak-Hefferan is a freelance writer and editor who specializes in climate and the environment. Her work appears in The New York Times, National Geographic and more.
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