Economists say Sydney's water is too cheap, and the city is "massively under-valuing" a scarce and finite resource as the drought continues unabated.

"Water in NSW isn't dirt cheap. It's way cheaper," said economist Richard Tooth, commenting on Sydney Water's latest pricing proposals. "Water costs little than more than $2 a tonne delivered to your house to a quality you can drink." (That is five litres of water for a cent.)

"Bulk soil costs 10 times that and you pay additional for delivery," said Dr Tooth, a former president of the NSW branch of the Economics Society of Australia, who has published academic papers on water pricing.

Upcoming level two water restrictions in Sydney will mean hosing the garden is not permitted. Credit:Sagi Biderman

His comments come ahead of a public hearing on Tuesday on water prices by the Independent Pricing and Regulatory Tribunal, where "everything is on the table", said a spokeswoman. With talks to include catastrophic risk and the impact of drought on prices, it is expected to hear different views on water use, including arguments for and against raising service or water usage fees.