Could data centers harm the US housing market?

In some of the world’s busiest housing markets, data centers have stopped being an abstract infrastructure play and started to look like a hard constraint on the ability to build homes.

London offers the clearest warning. A London Assembly report found that rapid data center growth in west London pushed parts of the local grid to “full capacity,” temporarily halting new housing developments and forcing emergency fixes to connect about 12,000 homes.

Officials warned that the energy usage of a typical AI data center was “similar to that needed to power 100,000 homes,” with grid pressures making it “harder and more costly to bring forward new homes.”

For US builders, a similar pattern would matter in three ways:

• Local authorities could delay or cap new residential approvals if utilities signaled that the grid could not support additional load without upgrades.

• Grid reinforcement costs – often triggered or accelerated by data center demand – were recovered through bills, feeding into higher operating costs for multifamily owners and single‑family households.

• Higher, more volatile power costs could make pro formas harder to pencil, especially for build‑to‑rent and affordable projects that could not simply raise rents to offset rising utilities.

In short, if data center build‑out ran ahead of transmission and generation investment in a given region, it could slow the pace at which new housing supply came online and raise the long‑run cost base of existing stock.

Construction costs and worker housing collided

The Brookings Institution warned that even building these facilities could aggravate housing shortages, noting that housing costs have skyrocketed in many places, including data center hubs such as Northern Virginia, and that some firms already provided mobile homes as temporary accommodation for workers.

That competition for skilled labor and short‑term rentals risked pushing up costs for conventional residential projects as well.

Data centers were mega‑projects that drew on the same finite pool of general contractors, specialty trades, and materials as large residential developments. When those projects arrived in waves, they:

• Bid up wages for electricians, HVAC specialists and site supervisors, raising per‑unit construction costs for housing.

• Soaked up contractor bandwidth, forcing some residential schemes to accept delays or higher prices just to secure crews.

• Added temporary worker demand for rentals and short‑term accommodation, tightening local markets and putting additional pressure on rents that working‑class households already struggled to afford.

For homebuilders already operating on thin margins, these higher input costs could tip borderline deals from “financeable” to “shelved,” reducing future starts and completions even if fundamental housing demand remained strong.

Grid constraints reshaped US housing risk

In the United States, the same tension played out most sharply in data‑center heavy states such as Virginia, Ohio and Illinois, where an independent watchdog found that data center demand accounted for 63% of a $14.7 billion capacity bill on the PJM grid.

Those costs flowed through to consumers via higher utility bills, adding another fixed expense on top of already stretched household budgets.

Virginia governor‑elect Abigail Spanberger has framed the issue as an affordability problem rather than a tech story.

“There’s some bad energy policies in some of our neighboring states that have driven up prices, particularly in southwest Virginia,” she said.

“We have to be clear‑eyed about the fact that we will have an energy crisis headed into the future.”

She added that “it will be important that large‑scale energy users, particularly data centers, that the public know that they are paying their fair share for the energy that they are using.”

Abraham Silverman, a former New Jersey utility regulator, put it more bluntly. “Data centers aren’t always great neighbors,” he said.

“They tend to be loud, they can be dirty and there’s a number of communities, particularly in places with really high concentrations of data centers, that just don’t want more data centers.”

He argued that their impact on capacity prices was “an extremely large component of the affordability crisis we’re experiencing right now.”

A slow‑burn risk, not a crash trigger

The mentioned pressures suggested that data centers were unlikely to trigger a housing crash on their own. But in power‑constrained metros, they threatened to slow new construction, raise operating costs and deepen existing shortages.

For lenders and builders already battling high rates, softening demand and rising input costs, the next wave of digital infrastructure looked less like a distant opportunity and more like another constraint that had to be priced into the US homebuilding outlook.

Homebuilders were already struggling with a wary buyer base. In November, the NAHB/Wells Fargo Housing Market Index sat well below the neutral 50 mark, extending a long stretch of negative sentiment, with a record share of builders cutting prices to move inventory.

NAHB chief economist Robert Dietz said builders “continued to see demand‑side weakness as a softening labor market and stretched consumer finances” weighed on sales, while chairman Buddy Hughes warned that “many buyers remain hesitant because of … concerns over job security and inflation.”

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