All politics is local. — Tip O’Neill, former speaker of the U.S. House of Representatives
All politics is local.
Voters delivered an unabashed message about data centers in this week's U.S. elections. Across 41 local ballot measures in ten states on November 3, voters favored restricting data center development in 40 cases, bringing the total for 2026 to 46 of 47 measures decided in favor of data center restrictions. The results included outright bans, construction moratoriums, additional approval requirements and opposition to favorable zoning changes. The overwhelming opposition suggests that voters want greater control over the data center boom unfolding in their communities.
The backlash follows an extraordinary expansion that has moved faster than communities could fully understand its consequences. Technology companies and developers have raced to secure land and electricity amid a frenzy of AI capital spending. Residents face higher electricity bills and greater demands on water supplies alongside disruptions to their quality of life. Through the lens of the election, the data center boom looks like a party thrown by teenagers while their parents were away. The parents have returned and may have some new rules and a bill for the damage.
The economic stakes are considerable. Data centers contributed 5.9 percentage points to annual private nonresidential construction growth in September while the rest of the sector was contracting. The weakness elsewhere reduced construction spending by 3.7 percentage points and left overall construction spending growth at just 2.3%. Annualized data center construction spending has nearly doubled over the past year to $96.5 billion excluding servers and computing equipment. When Washington and AI Compete for Capital examined the surge in bond issuance to finance the AI buildout and the growing competition for capital between corporate borrowers and the federal government. One study released before the election projects that the broader AI infrastructure buildout could exceed $10 trillion through 2032, surpassing even the great railroad expansion relative to the size of the economy. Such forecasts may prove optimistic if political opposition, permitting restrictions and physical infrastructure constraints limit the pace of development.
Slower data center investment would weaken an increasingly important driver of economic growth at a time when the rest of the construction sector is already contracting. An outright decline would not be necessary. Spending merely stabilizing at current levels would eventually eliminate its contribution to annual growth. Inflation is another consequence of the buildout. Electricity prices have risen much faster than overall consumer prices over the past five years. Producer prices for electronic components and accessories increased 26.8% over the year through September. Much of this pricing pressure related to AI is a result of the extraordinary demand for power, equipment, materials and skilled labor which has intensified competition for limited resources. A slowdown in the AI buildout would likely mean less economic growth and less inflation all else equal.
Greater political scrutiny should change the economics of data centers. Fewer tax concessions, additional infrastructure fees, longer permitting timelines and potentially higher local taxes would raise the cost of new capacity. Existing facilities with secured power and favorable operating terms could gain value as new projects face higher barriers. Bond investors could be among the beneficiaries. Slower construction would mean less corporate bond issuance to finance data centers and supporting power infrastructure. Less bond issuance alongside weaker growth and lower inflation could ease pressure on long-term yields. The AI boom may continue but a slower and more expensive buildout would likely be good for bonds.
Between the Lines is a weekly blog by DoubleLine Portfolio Managers Sam Garza, Joseph Mezyk and Quant Analysts Fei He, CFA and Sunyu Wang that breaks down topical macro and market issues. For questions or suggestions please e-mail us at betweenthelines@doubleline.com. The views and opinions expressed herein are those of the authors and do not necessarily reflect the views of DoubleLine Capital LP, its affiliates or employees.
