User blog comment:ScholarOfTheScrolls/Ulfric Stormcloak is NOT a racist./@comment-4662333-20131221163956/@comment-1600847-20140102170228

Like I said, I'm sure they'd prefer to live near the water, but I'm they'd prefer even more to be allowed to choose which. Take the Imperial City: a few Argonians live in the city, not at the Waterfront District but inside the walls. Still close to the water, but not next to it.

As to the reason they're kept out, I'd be more inclined to believe it's because of the Dunmer if we had but a single instance of Argonian-Dunmer violence in the game, but I can't think of any.