Every week, I talk to affordable housing professionals – originators, syndicators, developers, lenders – who are trying to close deals in a very challenging capital environment.. LIHTC pricing has softened. Water rates are high and will continue to increase. Construction costs keep rising. Federal programs have stalled. Funding gaps are real, and they are not getting smaller.
In that environment, every dollar of NOI matters. And yet, one of the most controllable line items in the entire pro forma – water and sewer expense – continues to be underwritten with generic, outdated assumptions that often have no connection to what a specific property’s water use and cost.
That disconnect is expensive. And it is becoming more expensive by the year.
The Water Cost Problem Is Structural – and It’s Getting Worse
Let me frame the challenge clearly, because I think the industry hasn’t fully absorbed what’s happening.
Water and sewer rates are rising across the United States – not slowly, but at rates averaging 5 to 9% annually in many markets. In some communities, rate increases have been far steeper. The reasons are structural: aging municipal infrastructure, increased regulatory compliance costs, and, increasingly, the reality that water supply itself is becoming constrained due to dwindling supply with increased demand.
Climate change is tightening freshwater availability across major regions of the country. The Southwest faces well-documented aquifer depletion and drought. Texas is confronting tighter regulatory scrutiny as aquifer levels decline. Parts of the Southeast, including Georgia and the Carolinas, have seen demand outpace recharge rates, not because of drought alone, but because population growth has outrun the supply assumptions those markets were built on. State and municipal water authorities are responding with rate increases, tiered pricing structures, surcharges, and, in some cases, development restrictions.
This is not a future risk. It is a current condition. And for affordable housing developers, syndicators, and lenders operating on thin margins with financing structures that have limited tolerance for surprise, it is a condition that demands a serious, strategic response.
What This Means for Underwriting
Here is what I see in the field: water and sewer expenses are routinely underwritten using broad comp data, outdated historical assumptions, and escalation rates that don’t reflect the actual trajectory of water pricing in specific markets. Hidden leaks – undetected for weeks or months in properties that lack real-time, unit level monitoring – are absorbed into proformas as normal operating expense. Consumption inefficiencies that could be fixed are treated as fixed costs.
The result is that NOI is understated. DSCR is lower than it needs to be. Development impact fees tied to multi-family water consumption are often overstated and rarely challenged. And deals that could work, if someone had looked hard at the water line and decided to do something about it, don’t get the financing they deserve.
At ION, our Water and Sewer Underwriting Supplement exists precisely to fix this problem. We bring property-level data, local utility rate analysis, and consumption benchmarks specific to affordable housing to every deal we touch. In the majority of cases, our analysis substantiates a meaningful reduction in projected water and sewer expense – increasing underwritten NOI and supporting additional debt capacity.
That is a real, measurable impact on a deal’s viability. In a market where every NOI dollar matters, that’s not a small thing.
The Capital Markets Connection
I spend most of my time working with originators, brokers, and syndicators – the people who sit at the intersection of deal flow and capital. My message to them is direct: the affordable housing developers you work with are going to face increasing water cost pressure, whether they’re ready for it or not. Your value to those relationships is directly tied to whether you can help them get ahead of these pressures.
Introducing ION’s End-to-End Management system into a deal costs nothing and takes little effort. All we need is a utility bill or expense history and a property address. Within five business days, we turn around a complete underwriting supplement that your developer partner can use in lender conversations – and that you can present as a genuine, substantive value-add.
When the analysis supports improved NOI – as it does in most cases – the benefit is shared by everyone at the table. Your developer gets a better deal. Your origination or sales process gets stronger. And you’re positioned as the professional who brought a forward-looking perspective before the market forced it.
That matters now and will matter even more as water costs continue to rise and lenders and equity partners start asking tougher questions about water strategy as a standard part of underwriting.
The Long Game
I want to be clear about something: ION’s value is not limited to underwriting. The affordability mission of this sector depends on properties that remain financially healthy over 15-year compliance periods, across refinancing cycles, through resyndication. Water expense that compounds at 6 to 9% annually – if left unchecked and unmanaged – erodes those returns quietly but consistently.
ION’s End-to-End Water Management system gives developers and asset managers real-time, unit-level visibility into water consumption across their portfolios. Leaks that once went undetected for months are identified and resolved in days. Consumption benchmarks help operators know what good looks like and when something is wrong. Documentation of performance supports stronger valuations and creates confidence for lenders and equity partners at every stage of the asset lifecycle.
On a 6% cap rate, reducing annual water costs by $120,000 creates $2 million in asset value. That is not a rounding error. That is a deal-changing impact.
The Bottom Line
If you’re a developer, syndicator, or lender who hasn’t yet asked a serious question about water strategy in your portfolio, I’d encourage you to start now. The trajectory of water costs and supply constraints in the United States is not speculative. It is already reshaping project economics in markets across the country. The developers who build water management into their thinking now will have a significant advantage over those who wait until it becomes a problem they can’t ignore.
Water is no longer a line item you can set and forget. It’s a variable that’s moving against you, and a lever you can pull in your favor, if you have the right partner and the right data.
ION is ready to be that partner.
