Hosepipe bans could have been avoided if extra reservoirs had been built, the GMB union has said.
The South East is in the grip of its driest period in almost 80 years
It said the move could keep prices down as "not enough rainwater is collected and used", while gardeners said the ban hit them "disproportionately".
The comments came as three more water firms in south-east England - Thames, Folkestone and Dover and Three Valleys - brought in bans for domestic users.
Regulator Ofwat said extra investment would have resulted in higher bills.
The hosepipe ban which has been introduced by Thames Water will affect more than eight million people.
Meanwhile, South East Water's hosepipe ban is being extended to its customers in north Hampshire, Surrey and Berks.
The restrictions follow two successive dry winter periods in the South East.
In March, a government ruling gave Folkestone and Dover Water (FDWS) the power to force its customers to install water meters.
Gary Smith, the GMB's national water industry officer, said insufficient amounts of water were being collected and used.
"Even in the areas with least rainfall per person we are still using less than 10% of it," he said.
"We need new reservoirs, particularly in the South of England. We need to change building regulations to ensure that rainwater falling on to houses is used for gardening and non-domestic uses," he said.
Mr Smith added: "Since this industry was privatised some of the companies closed down storage reservoirs and sold off the land for housing."
Meanwhile, the gardening industry reacted with anger to the ban, claiming it was nothing more than a "publicity stunt."
The hosepipe ban will apply to watering plants and car washing at residential addresses but there will be no restrictions on using a hose to fill up a swimming pool or hot tub or at commercial car washes.
David Gilchrist, of the Horticultural Trades Association, said it was important to clarify to people that they could still water their gardens, using watering cans.
"We know it is important to save water, but as an industry we are angry that we are forced to pick up the tab for a hosepipe ban that disproportionately hits the gardening industry," he said.
Tackling the waste by the water companies through leakage would be more effective than imposing bans on gardeners, he suggested.
Philip Fletcher, director general of Ofwat, said some water companies are currently applying for more severe restrictions to close some of the loopholes.
Commercial car washes
He said he did not agree with the GMB's inference that the industry was in "crisis".
"None of the big reservoirs, the reservoirs that are crucial to our supply, are being sold off," he told BBC Radio 4's Today programme.
Some smaller storage service reservoirs were sold in the past, but regulatory obligations meant the firms could only do this after investment in updated facilities took place, he added.
"If we tried to spend our way so that hosepipe bans never happened in any circumstances, that would have meant much bigger increases for customers and would have been to the detriment of the environment," Mr Fletcher said.