That's already how it works. The propery rights in water are all owned by somebody, and the owner can sell them or lease them as desired. Many farmers in eastern Colorado have sold or leased their water rights to new suburban water districts, for example. The effect of this is to return the land to the pre-Colombian dryland environment, suitable for low density grazing of bison--and windmills.

And while we don't have a free residential allotment, our city water rates are so low ($0.016 per cubic foot) that it doesn't really matter.