It's one of the applications for zoning in rural areas.
My parents live in an area where there is no municipal water system. Due to the geology for both water supply and septic systems, they mandate a minimum lot size of 4 acres.
I can’t speculate too much without knowing where, but it sounds more like regulatory capture to prevent development.
With conservation, rainwater collection, gray water re-use, incinerating/composting toilets and/or engineered septic fields, a lot can be done without a lot of groundwater or usable natural septic field.
My parents live in an area where there is no municipal water system. Due to the geology for both water supply and septic systems, they mandate a minimum lot size of 4 acres.