Policymakers are focused on the electricity and water impacts of data centres, but the labour market implications of the build-out are set to have an equally big impact on the economy.

Data centre investment in Australia is surging; despite a drop in investment flows last quarter, that momentum is expected to continue. According to AEMO’s Electricity Statement of Opportunities released in August, there are 225 data centre development projects, though that number is probably higher and growing quickly.

While not all of those projects will reach the production stage, data centre investment has quickly become the Australian Information, Media and Telecommunications sector’s mining boom, with capital expenditure up around 190% from pre-ChatGPT release levels to $24.3 billion over the 2026 financial year.

According to ABS data, roughly 45% of that capital expenditure is attributed to buildings and structures, up 57% from pre-ChatGPT levels.

That expansion doesn’t happen in a vacuum. It demands resources, and while these capital investments generally have a net positive economic impact, ‘crowding-out’ of other economic activity does occur because resources are scarce.

As a result of growing demand, Australia’s construction industry is under pressure to secure enough labour to meet requirements for more data centres while concurrently trying to address a dwelling shortage that has continued to worsen affordability.  With limited ability to draw workers from other industries, residential and industrial construction firms are competing against each other.

The construction industry has faced a labour problem for some time, and this new investment boom will likely compound it.

Several construction occupations have been in continual shortage since 2021, when Jobs and Skills Australia began tracking occupation demand relative to supply. Of the 139 occupations identified nationally as being in persistent shortage, 51% are Technicians and Trades Workers, mostly in construction and engineering.

New builds are likely to have delays as skilled labour remains scarce across the industry.

When such a shortage persists over long periods, supply and demand dynamics take hold and prices rise. The sector has seen above-average 13% private-sector wage growth since ChatGPT was released in late 2022, despite a 4% decline in labour productivity over that period.

Part of the reason these workers have benefited from higher wages while productivity has declined is the specialised skills they possess. The skills construction workers possess aren’t easy to acquire, which naturally restricts labour mobility into the industry when demand is high.

As demand for data centre construction grows, construction firms will compete even more for limited skilled labour. That will likely mean higher wage offers from data centre construction firms with deep-pocketed customers more than willing to foot the bill.

For tradies, this will likely mean higher wages, but it will also draw labour away from residential construction, crowding out activity and reducing new dwelling supply.

Federal government labour market policies aren’t doing enough to close the construction gap. Photo: Hilary Wardhaugh/Getty Images

In the current market downturn, residential construction firms are struggling to pass costs on to customers, constraining home builders’ ability to pass on higher labour costs the way data centre construction firms can.

The solution here isn’t to stop data centre builds. While that might mean slightly more homes over the medium term, it will likely mean lower economic growth and less long-term prosperity.

The focus needs to be on securing a larger supply of skilled labour.

Infrastructure Australia expects a shortfall of 126,000 trade workers and labourers by the middle of next year, and Master Builders Australia expects a shortfall of 116,000 housing construction workers in 2030.

REA Group economist Luc Redman. Picture: realestate.com.au

Industry, think tanks and some policymakers have pointed out these problems for some time, with several proposed solutions. One has been upskilling workers, though currently this is difficult given the tightness of the labour market; this method also tends to have a lagged effect.

While a suite of policy changes will be required, the short term needs a more immediate solution, and the most optimal solution is to leverage our migration system.

Currently, Australia doesn’t prioritise skilled construction migrants enough in the visa system, with 2,500 temporary skilled visas granted in the 6 months to December 2025, less than the manufacturing sector despite having more applications.  Without a policy shift, the construction industry will continue competing for scarce talent.

Allowing more skilled construction labour into Australia will help reduce the pressures the industry is feeling. It will mean more activity, faster builds and the opportunity for Australia to both capture the positive impacts from the data centre builds while reducing the impacts on our housing sector.

Luc is an economist at REA Group.

Source link