A New South Wales government inquiry has heard that the rapid expansion of the datacentre sector, driven by AI demand, is raising serious concerns for transport, logistics, and housing. Transport for NSW and the Reserve Bank of Australia (RBA) have warned that datacentres are competing for scarce industrial land, pushing up prices and potentially overheating the economy.
Transport and Logistics Under Pressure
Transport for NSW told the state parliament inquiry that freight and logistics companies depend on industrial land near markets and transport hubs. The agency's submission noted that a shortage of land is forcing major operators to leave Sydney. “The shortage of land is causing major freight and logistics operators to leave Sydney. They are relocating their main centres to Brisbane or Melbourne where suitable land is available and less expensive,” it said.
While the industrial land vacancy rate has improved nationally and in Sydney in recent years, it remains “well behind international rates and below the ideal market level,” according to a Transport for NSW spokesperson. The agency warned that fragmentation of freight activities due to competing land uses could increase business costs and consumer prices, urging coordinated government policy for strategic land management.
Industry Response and Vacancy Rates
Data Centres Australia, the peak body for the sector, cited CBRE research showing the vacancy rate is now close to 4%. Chief executive Belinda Dennett said supply is responding with “strong new development and continued logistics investment in western Sydney.” She argued for releasing and servicing more land with proper planning, stating, “The answer is to release and service more land and plan it well, putting the right uses on the right land, so freight keeps the transport-connected sites it depends on while datacentres deliver the investment, jobs and infrastructure they bring.”
The Australasian Supply Chain and Logistics Association (ASCLA) supported Transport for NSW's position. Chief executive Steven Ballerini said, “We’re not opposed to datacentres as they’re critical infrastructure for the digital economy. But they are now competing directly with freight and logistics for the same well-located industrial land, and that’s a competition with real consequences.” He added that distribution centres must be close to populations, unlike datacentres, and moving them to the urban fringe adds cost, distance, and emissions.
Reserve Bank Warns of Inflationary Pressure
The RBA board has warned that rising investment in datacentres could add to inflation and has already put upward pressure on interest rates worldwide. Datacentre spending is a growing share of Australia's machinery and equipment investment, which was the single largest contributor to economic growth in early 2026. The Australian Bureau of Statistics reported on Wednesday that commercial and industrial building approval values hit a record high in May due to new datacentre projects.
Minutes from the RBA's June meeting, released on Tuesday, revealed that the strength of business investment caught the board by surprise. The board discussed the risk that the buildout could worsen skills shortages, with construction costs already high and workers in short supply. Pat Bustamante, a senior economist at Westpac, said the RBA would raise rates to cut spending elsewhere if datacentre spending competed for land and resources. “The RBA essentially will have to make room for this expansion because this expansion isn’t really interest [rate] sensitive,” he said, warning that home building would come under the most pressure if costs or rates rose further.
Community Groups Call for Moratorium
Three communities in NSW, Victoria, and Western Australia have allied to call on state and federal governments to halt approval of new datacentre developments until stronger protections for communities, cultural heritage, and the environment are considered. The Lane Cove Responsible Planning Group highlighted that five datacentres are planned for the northern Sydney suburb, taking up 40% of its industrial land. The alliance stated, “[Datacentres] take up space that could be used for other community infrastructure, green spaces and housing. And they contribute to greenhouse gas emissions and climate change.” They argued that existing planning systems were not designed to assess hyperscale AI infrastructure.
Political Calls to 'Pump the Brakes'
Federal Labor backbencher Ed Husic raised concerns about datacentres taking land that could be used for housing. “There’s been a bit of a frenzy going on with datacentre builds … Land gets snapped up that should have been set aside for houses, and we’ve already got 90,000 workers short in construction,” he told Sky News on Tuesday. “So if we are having a situation where datacentres are now taking up land for homes, we’ve got to pump the brakes on this.”
Assistant minister for the digital economy, Andrew Charlton, said the government’s top priority is building new homes. “States and councils need to prioritise housing in their local planning decisions,” he said. “The collective task of policymakers is to ensure investment in datacentres work in the interests of Australians, not the other way around.”
Industry Defends Planning Process
Dennett argued that a moratorium is the wrong tool, stating that datacentres are already assessed through rigorous, independent planning that requires environmental assessment, community consultation, cultural heritage protection, and binding conditions of approval. “A blanket pause would freeze the whole industry to legislate safeguards that for the most part already exist, while sending the investment, the jobs and the local infrastructure these projects bring to other countries,” she said.
