The two most important fundamental needs of towns and cities are a sufficient supply of adequate drinking water and the removal of polluted water. History has shown that if these needs cannot be met, cities rapidly become uninhabitable. New Zealand's current water systems were designed and built in the 19th century and have not been improved much since. Generally, infrastructure has been built on the assumptions of abundant water resources and the unlimited ability to treat and dispose of polluted waters. Especially in Auckland, New Zealand's largest city and one of the most rapidly urbanising cities in the world, there is increasing tension due to rapid urban growth and the costs associated with replacing old water infrastructure and extending it to new urbanised areas. The challenges of managing urban water systems in New Zealand today call for an application of system dynamics. Our proposed research is based on the hypothesis that systems thinking and modelling methodology can be applied to the question of urban development in the Auckland region and is a valid instrument to identify policies that effectively foster the sustainable development of urban structures, in particular urban water infrastructure. This paper discusses the current situation and challenges, and outlines the proposed research.