How would you like an Australia with fewer new homes, sold at higher prices?
Because that’s what we may face if the data centre boom takes over.
Commonwealth Bank has just finished a new analysis of the impact of data centres on Australia.
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It now warns that building so many data centres means building less of everything else.
“The build-out will require electricians, technicians, mechanical services plumbers, telecommunications cablers, engineers and project managers. As demand rises, existing shortages could worsen,” say CBA economists.
The problem is that data centre builders have such deep pockets.
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“[D]ata centre operators are generally able and will want to outbid competing projects for scarce resources. Demand is strong, large projects are often backed by major technology companies, and developers can raise capital,” the bank points out.
If engineers can make $300,000 working on data centres and every tradie can make $150,000, who will be left to install solar panels and build ships?
Not many people, that’s who.
“ … data centre investment poses risks to other national infrastructure priorities such as the renewable transition, defence uplift and housing over coming years.”
Mining boom, without the FIFO
This is not unlike the mining construction boom – Australia’s trades workforce all suddenly flocking to one industry and making a fortune.
It is wonderful for those workers.
They can pay off a mortgage, buy a beach house, fund their kids’ education, retire early, or do whatever they want.
(Sometimes, that’s going to be wasting the money on a jetski, and that is fine).
The difference with the mining boom is that this time, the building is happening in the cities, not the Pilbara.
Fully half of the planned data centre construction is in Sydney – where wages are already the highest in the country.
Sydney housing is crazy.
$2 million for a flat? That’s among the most expensive housing in the world.
Another 20 per cent of the data centres are planned for Melbourne.
A whole lot of extra economic activity can be a good thing, sometimes.
If unemployment is high.
But in Australia, unemployment is currently 4.3 per cent – pretty low – and the employment to population ratio is at a record high.
There’s not a vast workforce ready to do the job.
And if we import more workers, then the housing situation grows even tighter.
Australia’s energy situation is also at risk.
We need to build non-stop to replace ageing coal-fired power plants.
Our electricity bills are high enough already.
If we drag the workforce away from installing new generation capacity, then the cost of power will only go up.
You get what you pay for
If society values homes more than data centres, it will build homes.
That’s the theory of economics. Capital flows where it is most valuable.
But what if what “society” values is really what American investors value?
They want to pump money into data centres because there’s a gold rush on.
Investors are betting that one or two firms will come to dominate this new technology, just like Microsoft dominated the personal computer space, Apple won smartphones and Google won at the internet.
They want their firm to establish itself as the winner.
The way to develop a big lead is to invest now, early.
That is why the amounts of money flowing into AI are so, so big.
We can see the AI boom showing up in various Australian economic statistics. For example, capital spending in the IT sector.
Equipment spending is suddenly 10 times higher than it was a couple of years ago.
A similar pattern is visible in imports of automatic data processing machines (ADP in the following chart).
We should not underestimate how big this is.
Big companies want to build data centres, and they don’t want to build them in Myanmar and Senegal. They want to build them in Melbourne and Sydney.
They need places where electricity is stable, water supplies are reliable, the population is educated, and the political situation is not about to devolve into riots.
Data centres can be owned by the giant tech companies that are household names, or they can be owned by smaller companies who lease out the servers to those companies.
Either way, they usually put them in places where rich tech people want to live.
Data centres are not being put in places where land and labour is cheap.
Not yet anyway.
In fact, Melbourne and Sydney are about the highest-cost places you can locate anything.
Perhaps one day, the technology will mature and they will start to move to cheaper places.
But for now, no.
The data centres are coming to Australia, and we need to ruthlessly prioritise to make sure we invest in things that actually make this country a better place to live in the long run.
Jason Murphy is an economist | @jasemurphy.bsky.social. He is the author of the book Incentivology