The report found the cost of water in Australia's capital cities could increase tenfold in 25 years.
Mike Young from the Commonwealth Scientific and Industrial Research Organisation's Land and Water division says urban Australians are lagging behind the country's farmers in heeding the message about water conservation.
Mr Young says one possible solution to water shortages is a water trading system.
“One option is to move water from the rural areas through to the urban areas. And you do that by just buying a share of water that's available and paying the farmers who then have enough money to do something else, which might be to improve water use efficiency,” Mr Young said.