This is a test question, though. You have to separate out laboring in the water and actually giving birth in water. Most of the known advantages of water birth are actually related to the process of labor in water while the known disadvantages of water birth are associated with giving birth in the water.
For example, the benefits of reduced pain during the first stage of labor (that is, the part leading up to pushing), a shorter first stage of labor, and less need for anesthesia, all occur before the birth itself takes place. At the same time, the reported disadvantages of the water birth all take place during the actual process of delivery, including newborn aspiration, drowning, infections, fatalities, hyponatremia, depressed Apgar scores, and umbilical cord rupture.
So it probably makes the most sense to labor in the water and then get out when it’s time to push and have the baby on dry land.
If you think about it, nature designed the birth process to happen on dry land. One of the benefits of a vaginal delivery over a cesarean delivery is that the baby gets most of the amniotic fluid squeezed out of her lungs while traveling through the birth canal so that her first breath, once delivered, is full of nice, clean air. This doesn’t always happen with a cesarean delivery and consequently babies have higher rates of respiratory problems with cesarean delivery as compared to vaginal delivery. In any event, when a baby is born vaginally underwater, the first inspiration by the baby may be underwater and therefore lead to aspiration of water with subsequent increased risk of infections, drowning, and other respiratory maladaptions.
Keep these things in mind when you read about water births being more natural than land births. In fact, water births are a rather modern invention. Currently, the American Academy of Pediatrics and the American College of Obstetricians and Gynecologists recommend against deliveries occurring under water.