Rainwater tanks were a viable alternative, Mr Heath said, with nearby Mahia's more than 400 properties relying on tank water.
The council had already spent $70,000 on investigations into Mahanga's water supply, Mr Health said in his report to councillors.
Additionally, the impending introduction of stricter rules for drinking water in the wake of the 2016 Havelock North campylobacter outbreak made the upgrade's estimated price tag “extremely unreliable”, he warned.
That uncertainty, coupled with escalating costs, had forced the council to put on hold a similar water supply upgrade at nearby Opoutama/Blue Bay.
Wairoa district councillors voted on Tuesday to hold a referendum in 2020/21 among Mahanga ratepayers, seeking support to close it down.
At least 75 percent of voters will need to support the closure for the supply to be decommissioned, otherwise the council will be required to upgrade it.