U.S. information-processing investment passes housing

Twenty years ago housing drove growth in the U.S. economy. Now computers do. According to U.S. Bureau of Economic Analysis data, real private residential fixed investment was $748 billion in the second quarter, 18% below its early-2021 peak, while spending on information-processing equipment rose 51% over the same span to $752 billion and passed housing. That line item includes data centers and computer hardware.

The person who flagged the crossover is Adam Shapiro, vice president at the Federal Reserve Bank of San Francisco, and what he pointed to is the equipment investment flowing into data centers and AI infrastructure. In a recent social media post he wrote, "We're seeing a pivotal shift in the US economy: investment is shifting away from residential investment and towards computers," and added, "The AI investment boom is massive." According to reports, he also noted that residential investment is far more sensitive to borrowing costs.

Interest rates sit at the point where the two kinds of investment diverge. The benchmark 30-year mortgage rate is close to 7% and the 10-year Treasury yield is at its highest since 2007. Housing has been largely frozen under those numbers since 2022; AI investment has not. Hyperscalers have been drawing down cash piles and have started issuing debt as well, and METAL has reported that Alphabet raised $3.6 billion in its first Australian bond sale. According to reports, Alphabet also posted negative cash flow earlier this year.

U.S. Treasury Secretary Scott Bessent has been blunter about it. "We are also seeing big corporate issuance," he said recently. "And a lot of that corporate issuance, I would say, is almost yield-agnostic, because the build-out for AI, the returns on that, the companies believe they're going to be so high. They don't really care what they're paying." That is the government confirming that money indifferent to price is flowing in a single direction.

The scale is set to grow. Investment by a handful of companies is expected to reach $1 trillion a year soon, and S&P Global estimated last month that capital expenditure at Alphabet, Amazon, Microsoft, Meta, Oracle and SpaceX will rise from $470 billion in 2025 to $870 billion in 2026 and exceed $1.3 trillion in 2027. The same firm warned that industry capex is growing faster than revenue, which could leave overcapacity if demand does not arrive as expected, and it sees 2028 as an inflection point, with the six companies' combined operating cash flow negative across 2026 and 2027.

There is a reason the two flows are hard to call the same money. Residential investment creates an asset people live in, and the value of that asset shapes household balance sheets. Investment in information-processing equipment lands on the books of a small number of companies, and once it is finished few people work inside it. In the national accounts the two lines sit side by side, yet the number of households the money reaches is nothing alike. Saying the pillar of growth has changed also means the destination of growth has changed.

The backlash has already moved into the language of elections. According to reports, a new poll found that 64% of registered voters would be less likely to support a candidate who favored building a data center in their community. METAL has reported the argument that the AI industry missed the data center backlash while it was debating extinction risk, and has also reported protests against data centers outside the fence of an international summit. The sense that electricity bills and device prices are rising while homes stay out of reach sits on top of that.

The housing numbers run the other way. Housing starts fell 2.6% in August to an annualized 1.275 million, led by multifamily projects. Single-family starts rose but permits fell, pointing to weaker activity ahead. Existing supply is held down by the lock-in effect of owners clinging to low mortgage rates, and builder sentiment as measured by the National Association of Home Builders fell to its lowest level in a year. Capital Economics wrote in a recent note that "elevated and rising borrowing costs are holding developers back," adding that it expects the downward trend in housing starts to run further.

In the bureau's second estimate for the second quarter, which METAL reviewed, real gross domestic product grew at an annual rate of 1.5%, slower than the 2.1% of the first quarter. Consumer spending, exports and investment rose while government spending fell. The personal consumption expenditures price index rose 5.3% and corporate profits increased $400.9 billion. Nowhere in those five pages does the phrase data center appear. This shift does not condense into a single line item; it happens between the rows of the table.

The housing boom of twenty years ago remade the U.S. economy and then broke it. This shift has already passed that line item in size, and its pace is not held down by rates. Two things are worth watching next: whether the crossover holds when the bureau publishes its third estimate and annual update on September 30, and whether the 2028 in which revenue catches up with capital expenditure actually arrives. Which kind of money changes more lives, the money that builds homes or the money that builds computation, is the question after that.