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1. Add water and cubed potatoes to stockpot.
2. Bring to a boil over medium-high heat.
3. Reduce heat to medium and boil potatoes until tender, about 20 minutes.
4. Remove potatoes with slotted spoon to bowl.
5. Drain stockpot, reserving 1-cup potato water.
6. Stir in butter, chopped onion, and all-purpose flour.
7. Season with salt and pepper.
8. Stir in potatoes, reserved liquid, whole milk, white sugar, cheddar cheese, and diced ham.
9. Simmer 30 minutes, stirring frequently.
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