After decades of decreasing water supplies coupled with irresponsible explosive growth in the Great Basin, Front Range, and SW in particular.its just asking for trouble.
Even with the reduced precipitation there's still plenty of water for residential and commercial use. The problem, at least where I live (Utah), is agriculture. 80% of our water goes to agriculture. It would be one thing if we were growing regionally-appropriate crops for local consumption, but nearly all of that agriculture is to grow alfalfa (a water-hungry crop that isn't appropriate for the high desert climate), and nearly all of that alfalfa is shipped out of state, much of it out of the country, to feed cattle elsewhere. China is one of the biggest buyers. Essentially, our farmers are selling the contents of our aquifers to the world.
If we had plenty of water, letting our farmers buy it at a deep discount and sell it to willing buyers elsewhere would be fine, just another commercial use of a local resource, which is what trade is all about. But we definitely don't have plenty of water.
The solution is simple and straightforward (though legally complicated): Don't discounts. Set the same price for water across the board, residential, commercial and agricultural. There can and should be minor differences in delivery cost, and surcharges for purification, but the base cost of the water should be set through a single government-managed market, probably at the state level, probably divided up by drainages (drainages with more abundant water will have cheaper water; if this creates an arbitrage opportunity for someone to pipe water between drainages, great!).
Yes, this would probably put the alfalfa farmers out of business, but that's good because growing alfalfa in the desert is a bad idea. It might also raise the price of local produce, but that's as it should be, putting agricultural water use directly in competition with other water use. If prices go up, people will find ways to be more efficient. Farmers may switch to drip irrigation. If you build too many houses for the available water supply, well, those houses are going to have very expensive water and residents are going to want to find ways to conserve -- and maybe the high cost of water will disincentivize new move-ins.
The bottom line is that efficiently allocating scarce resources is what markets are good at. The problem with water isn't that there are too many people or not enough water, the problem is that we don't properly allocate the water or encourage conservation in the right places. Trying to fix this through regulation rather than market pricing will always be subject to regulatory capture and will never be as efficient or as effective as just enabling a competitive market and letting it work.
