[s1artibartfast]

It is not a matter of subsidized water, It is a challenge around private water ownership and public demand.

Most western states have some form of private water ownership, where land owners own the water under it, like gold, oil, ect.

Most of the population is urban, and don't have sufficient water ownership to meet their demands, particularly in times of drought.

This creates a natural conflict between owners who want to use it for one thing, and thirsty cities who don't own the water.

The the extent it is a the fault of suburban households, it is their fault for not buying the water or lands to meet their needs.

https://mywaterearth.com/who-are-the-global-water-grabbers/

[scarmig]

If a perfect market existed in water in western states, the cost of a gallon of water would be the same whether directed to urban or agricultural uses. It clearly isn't, which is a pretty clear sign that there are high frictions facing people who want to purchase the water they need.

A fix to this requires a change in policy.

[s1artibartfast]

It is not the price of a gallon that is being paid, but the right to use a gallon for all time. There are indeed high frictions, mostly in the form of upfront capital costs.

If you want to buy a farmers water, they want to be compensated for sunk capital and future earnings. They bought land, planted it, drilled wells, and have 30+ years of future earnings, after which, they could sell their rights.

In short, the relevant market is for the water rights, not the water itself.