Senate Economics Legislation Committee, , 1:43:30 to 1:50:52
Discussion on the massive pipeline of data centre construction and its potential impact on inflation, labour resources, and housing supply.
Topics: Data centres, Infrastructure, Employment
Speakers: Jenny Wilkinson, Senator Nick McKim, Dr Angelia Grant, Unknown Speaker
Alright, thanks. Wilkinson, um I presume you share the view that the economy is sort of at or near um capacity. If if you do, can I just put this to you? Australia's the third highest pipeline of data centre construction after the US and China, so that's globally the third highest pipeline. We've got about 156 billion dollars of investment in the pipeline for data centres. If our economy is uh at or near capacity and all of that construction, um materials required, the labour required gets sucked into data centres. What does that mean for firstly inflation if the economy is at or near capacity? And secondly, what does it mean for housing construction and housing inflation given that we're already supply and labour constrained in that sector?
So, Senator, I I mean I I think I um I think I made this clear in my opening statement. So I it it you know, one of the things that um uh I think we would observe um is that um the economy is running you know close to capacity. Um that's um uh one of the reasons why you know the RBA's publicly statement stated that interest rates were um increased from February this year, and it's you know one of the one of the that the fact that the output gap appears to have been smaller than expected um in the middle of the last year is is kind of one of the things which has probably was almost certainly led to some of the domestic inflationary pressures. Um as I said also in my opening statement, you know, the very significant opportunities that present uh with AI also do come with very strong investment, and there's a there is a bit of a tension here because some of this investment we would expect to improve and increase the productive capacity of the economy. Um, in other words, to improve our sort of long-term potential growth rate and improve the returns that can be generated for for wage and salary earners. Um on the other hand, you're right that in the short term where there's capacity constraints in an economy and where the unemployment rate remains reasonably low, it can put upward pressure uh into the system. And um so there is that I mean I I think I can agree with you that there is that tension which which we've drawn out that we're grappling with that other countries are also grappling with uh in terms of of the pressure on those resources. It's a little bit like the pressure on some of those construction resources that have come from the um some of the significant investments in public infrastructure, you know, roads and things uh over the last couple of years, which again are important for the long-term productive capacity of the economy, but but um yeah, they they require labour and they require capital. Sure. That's right. So there is a tension between.
Alright, so what what's the impact? Have you done any modelling on what the impact? I mean um data centres are overwhelmingly private investment. Um the government is relying on private investment to reach its 1.2 uh million dollars, uh, sorry, 1.7 million new homes target. Um what's the impact of this you know, recent but massive uh investment into in into the pipeline for data centres and the uh the impact that that's gonna have, which you've you've just agreed on some of the um the constrained capacity, including materials and and labour. So what's the impact of that in that massive spike in investment into data centres going to have on the government relying on private um property developers to reach its 1.2 million new homes target?
Um so there's so I'll see whether Dr. Dr. Grant's got something to add here. I mean, I I don't think that we have specifically modelled um the impact of a particular projection for how of for data centers.
There will be an impact in a sector will have.
But it's but it's captured in our I mean it's it's captured in our macroeconomic outlook. I mean, one of the things I would say is, and as I pointed out in my opening statement um that you know we are actually expecting um demand growth to ease uh over the next year. We are expecting um uh some of the activity in the housing sector to come off just because um there is of the tightening financial conditions that have taken place and so some of those capacity pressures um which you know have been um acute over this first half of the year, we're actually expecting some of those to ease, and and we can already see that in the um increase in the unemployment rate, for example, which has happened. So I guess we just want to be a little bit careful about the kind of um an overlay of the cyclical and structural uh shifts which are taking place at this time.
Just before Dr. Grant um response, but could I just ask quickly um Ms. Wilkinson? You would agree there will be an impact. I mean you've you've described it as a tension.
Yeah.
Um can I take from that that you agree there will be an impact on housing investment as a result of um a massive spike in the investment pipeline for data centres?
Well, to the extent that these are this is another source of demand for labour. There could be, on the other hand, if if actually the unemployment rate is to rise because the economy is softening, then this would be this could mitigate um uh uh some of that easing that could occur.
I think I just want to give Dr. Grant hopefully a quite a brief opportunity. Um and then I do just have one other topic which I don't think will take long, Chair, but I'm on your hands on that. So Dr. Grant.
I will be very brief, Senator But on page eight of the intergenerational report, we do make reference to the fact that data centre construction is increasing competition for capital and resources and adding to demand for skills, increasing the importance of addressing capacity constraints across the economy. In the data we've seen for 2025-26, we saw both stronger than expected dwelling investment and stronger than expected business investment. So it didn't seem to have an impact that year, but we are monitoring this very closely as it could have an impact over the coming year. The only extra thing I will add is that the housing market is facing some capacity pressures from the costs coming from the Middle East crisis as well. So that's also playing out. That's all I've got.