Antmavel> Apparently little can only be used to describe "mass nouns" like water, but not vegetation.
I then googled mass nouns and vegetation to come to the following:
1. In English grammar, a mass noun (also uncountable noun or non-count noun) is a type of common noun that cannot be modified by a number without specifying a unit of measurement; thus mass nouns have singular but no plural forms. Count nouns have plural forms, and can be modified by numerals and quantifiers like "one", "two", "every", "most", etc.
It is often erroneously thought that mass nouns represent substances not easily quantified by a number, such as water. Mass nouns like "furniture" or "cutlery", which represent easily quantified substances, show that the mass/count distinction should be thought of as a grammatical property of the expressions themselves, rather than as a property of the substances they represent: consider the fact that the same set of chairs can be referred to both as "seven chairs" and as "furniture". Thus it is the expressions, not the entities or substances they refer to, which can be characterized as mass or count. Thus the definition in the first paragraph makes reference to what other expressions a mass noun can co-occur with, not what the mass nouns refer to.
2. Vegetation is a general term for the plant life of an area; it refers to the ground cover provided by plants. The term is general. It is related to, but not synonymous with, flora but is broader in that it is not limited to information on species composition alone. Perhaps the closest synonym is plant community.
Putting one and two together, and substituting plant community for vegetation for vegetation, it is ungrammatical to say:
In the southwest, urban sprawl has increased new housing developments out into areas where
little water or plant community exists. As stated in B.
<or>
In the southwest, urban sprawl has increased new housing developments out into areas where
little water or plant communities exist. As in A.
Therefore E provides the only syntactically correct option by rewording the ending to properly count both the plant community and water availability in the Southwest.
One more thing, as you know I just got back from a roadtrip in Arizona and it is indeed DRY, with little available water! Without the Colorado river, the whole area would be a parched, desolate dust bowl.