Arizona will not allow new housing construction in the Phoenix area that depends on groundwater, a decision that comes as the state grapples with a multi-decade drought and diminishing water supplies.

Arizona Gov. Katie Hobbs, during a news briefing on Thursday, announced the restrictions that could impact the quickly expanding suburbs around Phoenix. The decision by the Arizona Department of Water Resources applies only to groundwater supplies and would not affect current homeowners who already have an assured water source.

A megadrought has generated the driest two decades in the West in at least 1,200 years, and human-caused climate change has helped to fuel the conditions. Water sources are declining across the U.S. West and restrictions on the Colorado River are impacting all sectors of the economy, including construction.

Earlier this year, Arizona projected that developers planning to build homes in the desert west of Phoenix don’t have enough groundwater supplies to execute those plans.

The analysis found that roughly 4% of the area’s demand for groundwater, nearly 4.9 million acre-feet, would not be met over the next 100 years. An acre-foot of water is about what two average households consume per year.

The decision would allow developers to continue to build in the affected areas but would require them to find alternatives to groundwater supplies. During a nationwide housing shortage, developers are hoping to build homes in growing metropolitan regions such as Phoenix despite water shortages.

Arizona developers have said they can work around dwindling water supplies, pointing to technology such as low flow fixtures, drip irrigation and desert landscaping. The state’s restriction could also prompt developers to seek out other water sources, such as purchasing access to river water from farmers.

Despite the restriction, the governor said Arizona isn’t running out of water and is equipped to manage the situation.

“My message to Arizonans is this: we are not out of water and we will not be running out of water because, as we have done so many times before, we will tackle the water challenges we face with integrity and transparency,” Hobbs said.

The announcement comes as Arizona experiences disappearing groundwater as well as diminishing levels from the drought-stricken Colorado River, which supplies water to more than 40 million people in the U.S. The state receives roughly 2.8 million acre-feet per year, or about 18% of the total allocation, from the Colorado River.

Last month, Arizona struck a deal with California and Nevada to voluntarily reduce their water usage from the river in exchange for federal funding. Arizona has endured two rounds of mandatory water cuts from the river over the past two years.