The problem is that water rights are covered by State constitutions and statutes. Introducing markets would require changing those laws and seizing water rights. That might require making huge compensation payments to existing rights holders. Politically it's just extremely difficult.

In general US agriculture is extremely wasteful of water. We could drastically cut water consumption by adopting farming techniques used in Israel, but food costs would increase.

“That might require making huge compensation payments to existing rights holders.”

I doubt most of the stakeholders paid anything for their water rights. Perhaps, if there is any compensation, it would be equal to what they paid for the actual rates originally inflation adjusted.

That's not how the law works. Acquisition price is irrelevant to 5th Amendment rights. Compensation must be based on current fair market value. You might consider that unfair but it's the reality of our laws today.

The easy thing to do would be to tank the value of water rights first.

Taxes seem like an obvious option. I can't think of any constitutional reasons why they can't tax you for drawing from natural springs, else all new taxes would be a constitutional issue. You may not even need to nationalize then.

You might also be able to simply ban private consumption of water from waterways. Nothing is being seized, they still own the water, it's just worthless because they can't use it. Similar to what would happen if we ban coal. I don't think we'd have to go track down everyone with rights to a coal vein and pay them what it's worth.

Laws can be changed, especially when it comes to people’s survival.

The market is always too late in constraining resources often running counter to it. Higher prices for water will lead to more water being mined. High oil prices led to deep water drilling, fracking, and tar sands.