Rule of Capture and Urban Sprawl: A Potential Federal Financial Risk in Groundwater-Dependent Areas

Abstract:     
This paper illustrates the potential federal financial risk created by groundwater overabstraction, rapid urbanization, competing economic interests, and institutional arrangements in groundwater-dependent areas of Texas. In the Upper Trinity Groundwater Conservation District, located in the Dallas-Fort Worth metropolitan area, urban sprawl creates suburbanized rural areas reliant upon the Upper Trinity Aquifer. In the past 10 years, competition of economic interests for groundwater has intensified, as the area has experienced rapid urban sprawl combined with escalating Barnett Shale hydraulic fracturing activity, which coincided with two extreme droughts in 2006 and 2011. Urban sprawl generates business opportunities and tax revenues for state and local governments in the short term, but if groundwater overabstraction leads to land subsidence, financial risk is transferred to the federal government through increased risk exposure from federal housing loans and government-backed residential lending.

Keywords: FHA, VA, loan, mortgage, urban sprawl

JEL Classification: R31

Accepted Paper Series