The US Is Choosing AI Over Housing

In effect, data centers used to power AI and housing are competing for resources.

Massive spending on AI projects is fueling inflation and pushing up borrowing costs on all kinds of loans.

These factors have led some economists to say that the U.S. is prioritizing data centers and other AI infrastructure over housing.

The U.S. has decided to build data centers instead of housing, and would-be homebuyers are paying the price.

Recent data on the housing market has been a sea of red flags, the latest of which came on Tuesday when the National Association of Realtors reported that homebuyers signed the fewest purchase contracts in September than in any month since at least 2001 .

The most immediate culprit is high mortgage rates, economists say. The highest mortgage rates in three years are pushing up monthly payments and discouraging owners from selling. The AI boom is at least partly responsible for soaring borrowing costs and for making it difficult to build new homes the market desperately needs.

To build a house, you need land, building materials, copper for pipes, steel, concrete, skilled workers, and most importantly, capital. It so happens that people building data centers want all those things too. The two sectors are competing for those vital resources, and lately, data centers have been winning.

AI companies are racing to build data centers , titanic complexes full of computers to power their platforms. This year, they will spend nearly $1 trillion on the projects, Gartner estimates. That colossal effort is sucking money and resources away from other parts of the economy, including housing.

This year, U.S. investors put more money into information processing equipment than they did into housing for the first time, according to data from the Bureau of Economic Analysis .

"We're seeing a pivotal shift in the U.S. economy: investment is shifting away from residential investment and toward computers," Adam Shapiro, vice president for economic research at the Federal Reserve Bank of San Francisco, wrote in a social media post.

The problem in housing and many other parts of the economy is what economists call " Dutch disease ," in which one sector of the economy flourishes so much that it drains resources from everything else. (The phenomenon is named after the economic challenges the Netherlands faced in discovering natural gas in the 1960s.)

Part of the problem for the housing market is that the AI spending boom is fueling inflation by pushing up costs for energy, computer parts, and other things that data centers need.