Should price increase as demand increases? From an economical perspective, it should. As demand increases, and the supply side remains constant, prices naturally rise. However, with water, because it is controlled by the municipal government, these prices will not reflect market-driven pricing.
As water shortages are increasingly common, there needs to be a safeguard to conserve water. As demand outstrips supply, according to this article, municipal governments levy fines or perhaps not renew building permits for any urban household/business that exceeds their quota. The article argues that this approach is ineffective. This approach does not reward water conservationists nor does it take into account the number of occupants in a household. Politically, raising prices of water would not be feasible. However, this approach could be feasible if urban households/businesses had a predetermined quantity of water per capita for a low price, and any excess consumption would be charged additionally. The “excess” revenue from this could be rebated to those who conserved, and this should alleviate rationing and shortages.
Will this adversely affect the poor? No, not at all. If they do not exceed the quantity threshold, they won’t get penalized. The author likens this to oil. When the price of gas was less than $4/gallon, there was little or no incentive to conserve fuel, rather consumers were looking for the biggest and most powerful vehicles. The same approach needs to be taken with water.