It's called a Johannine misunderstanding which means one of the many times in John when we read of people not getting it spiritually . We must be made alive by the one alone who breathes life and resurrects . Jesus says it again . There are two ways of looking at this . To be born of water could refer to physical birth .
Birth is a wet experience for all present .
So first be born physically and then be decisively born a second time into the Kingdom of God . Or equally the water could refer to baptism . The baptism people knew, and would have thought of, was John the Baptist's baptism of repentance . We need the Spirit of God to immerse us . We need to turn form our sin and towards God .