- Cam Wilson, Anton Nilsson 

Apr 2, 2026

Local councils are calling for a moratorium on data centre approvals, to cap their construction, and to restrict where they can be built, warning that the AI-fuelled building boom is draining water and power from housing developments and generating few long-term jobs.

As the federal government looks to fast-track the construction of data centres in Australia, three councils have told a state inquiry about the consequences of the uncoordinated explosion of 88 data centres built across Sydney and their fears about the scale of future development.  

The NSW data centre inquiry, the first of its kind in Australia, comes at a time of growing pressure — and, now, opposition — to build out the digital infrastructure to satisfy the ravenous computing demands of the generative AI boom kicked off by the release of OpenAI’s ChatGPT in late 2022. 

Its chair, Greens upper house MP Abigail Boyd, said she pushed for the inquiry because she was concerned with how much energy and water the data centres were consuming. 

Those concerns were partly informed by a report by NSW’s Independent Pricing and Regulatory Tribunal that showed that Sydney Water estimated the water needs of data centres could reach up to 250 megalitres per day by 2035. Minutes from a Sydney Water meeting last September showed the centres were expected to increase the utility’s demand by 25%.

“The final straw was the energy piece — we asked a question of the [state’s] energy minister who reckoned data centres would consume about 11% of the state’s grid-supplied electricity by 2030,” Boyd told Crikey. “The data centre boom will also endanger NSW’s goal of getting to 100% renewable energy — it’s basically going to lead to coal-fired power stations staying open longer.” 

Of the councils that have made submissions to the inquiry, Penrith City Council went the furthest with an explicit call to the NSW government to stop approving data centre applications altogether until water and power impacts “are fully understood”. 

The Western Sydney council’s submission argued that it is already the hottest part of the city, and that data centres located there would consume even more energy and water for cooling.

The City of Ryde, the data centre capital of NSW, said the concentration of data centres “far outpaced the delivery of essential infrastructure”. Five data centres already operate in its Macquarie Park precinct, with seven more state-significant development proposals under assessment. 

Ryde council claimed that housing projects have been delayed because Sydney Water could not meet water supply capacity, with much of the available supply already allocated to data centres. 

“These pressures are further compounded by the significant population growth underway in Ryde, including growth associated with the National Housing Accord, which aims to deliver a large number of new homes in the LGA. The cumulative effect is direct competition for finite infrastructure capacity between large, continuous‑load data centres and urgently needed housing development,” Ryde council’s submission claims.

“As a result, some approved housing projects have been delayed because Sydney Water has been unable to meet the required water supply capacity. It appears that much of the available capacity has already been allocated to the substantial water demands of data centres.”

The council’s submission also raised concerns about the limited employment benefits for its residents. It said that the Julius Avenue data centre project will create 3,424 jobs during construction, but just 50 ongoing roles once it is built, such as security guards and patching technicians. The submission called for banning the construction of more data centres in one type of zone, the E3 productivity support zones, which cover parts of Macquarie Park.

The City of Sydney called to maintain its de facto veto over any data centre projects built in its area, thanks to its existing exemption from the state’s fast-track approval process. Its submission also called for the reclassification of data centres out of the “light industry” planning category, given their actual impacts, a move that would significantly limit where they could be built across the state. 

The council also took aim at figures spruiked about the economic benefit of data centres, saying that most of the upfront investment goes into buying GPUs — the computer chips that do the processing — with little direct benefit to the Australian economy.

Councils weren’t the only submitters raising the alarm about resources. Renewable energy company Squadron Energy warned that wholesale electricity prices could rise by around 26% in NSW by 2035 if data centre growth is not matched with new generation. 

The Sydney Desalination Plant noted that projected data centre water demand by 2035 of 250 million litres per day matches its entire maximum daily output. No Sydney data centres currently use non-potable water, and the recycled water facility intended to supply Macquarie Park has no confirmed operational timeline.

Another submission made by the Australian Writers’ Guild and the Australian Writers’ Guild Authorship Collecting Society cited competition for resources, as well as copyright concerns, as why AI data centres shouldn’t be built in NSW.

Data Centres Australia, the industry lobby group whose members represent 86% of data centre capacity in Australia, pre-empted many of the complaints made by local councils by arguing that they are overblown.

It cited Oxford Economics research estimating that six in every seven megawatts of grid connection requests are “phantom demand” that will never materialise, meaning that development applications are not a good indication of how many projects are actually coming down the pipeline. 

Its submission claimed that data centres use six times less water than public swimming pools in Australia and generate $12.6 billion in gross value added per terawatt-hour of energy consumed — more than mining or manufacturing — meaning that they more than justify the resource demands. 

The group conceded that “precinct-level planning could be improved” and said that Data Centres Australia supports working with councils.

The lobby group’s submission concluded with an appeal to state rivalry. Victoria’s approvals process, it said, has dedicated teams helping unblock stalled processes. It argued that approvals were no less rigorous and faster. 

That, “coupled with strong signalling from the Victorian government that it is open for data centre investment, makes it an attractive market”.

Read the article here: https://www.crikey.com.au/2026/04/02/nsw-local-councils-inquiry-freeze-ai-data-centre-construction/