Dr Peter Coombes, a former chief government scientist, said a holistic water-saving approach was needed across governments, water providers, households, businesses and community groups.

This includes installing rainwater tanks on each building, implementing projects that capture and re-use water to reduce wastage and taking on 'out of the box' projects that may cost more at the time but will provide long-term savings.

These measures are part of his latest independent report about water security in the Hunter and Central Coast, which will soon be given to Hunter Water and Water NSW. His preliminary findings were recently presented to some of the country's leading water experts in Newcastle and sparked a lot of interest.

"All through every drought in Australia we've had regular rainfall in cities. It's the small rainfall events that make rainwater tanks work," Dr Coombes said.

"Dams only work for big rain events because the majority of water that falls on catchments, if they are dry, is lost to the atmosphere or to the soil, it doesn't run off into the dam.

There are only 40,000 rainwater tanks in the region and one third of them are not working properly, a Hunter Water study has found. A spokeswoman urged residents to check their tank was connected to the roof and the pump was working.

Read more: Hunter on path to water restrictions

Dr Coombes has run his home on rainwater for 21 years with a 5000 litre tank and a roof area of 80 square metres. In a year of average rainfall he does not rely on Hunter Water. During drought he still sources 75 per cent from the sky.

Hunter Water's combined storage level is sitting at 67.9 per cent and at this rate level one water restrictions will begin in August and level two in December.

Residents are using between 190 and 200 litres of water every day - about half of that is used in the bathroom, 20 per cent in the laundry, 20 per cent in the kitchen and another 20 per cent is used outside.

Dr Coombes said building another dam would not create water security. He said the Hunter already had access to Mangrove Creek Dam on the Central Coast, which could be used more effectively to boost water storage levels.

"You need to be careful of assuming that just because you have another dam doesn't mean that it will be full of water all of the time," he said.

"The way forward is more water saving, more local water savings, understanding that there are more alternate ways to collect and save water."

Kingspan, a large rainwater tank manufacturer, said focusing on harvesting water where it fell was much more economical.

"If you've only got one source of water then you are inherently vulnerable," Technical and Sustainability Manager Michael Smit said.

"If you've got a whole range of sources of water you can call on you've got more choices and you can deal with things more efficiently. Having a range is good risk management."