The rapid expansion of data centres in Melbourne is sharpening the focus on a resource often overshadowed by the power debate: water. As global demand for digital infrastructure accelerates, particularly with the rise of AI, the question of whether Melbourne’s water systems can sustain parallel growth in housing and data centres is becoming unavoidable.
Rob Hammond, director and global data centre lead at TBH, an independent planning and project management consultancy, recently argued that smarter, coordinated planning is the only way to avoid conflict between essential infrastructure and housing.
Speaking to W.Media, Hammond warned: “Melbourne’s water infrastructure is already under strain, and the addition of nearly 20 gigalitres of new industrial demand is a clear tipping point. Without strategic upgrades and smarter planning, we risk bottlenecks that constrain both data centre growth and housing supply particularly in fast-growing corridors like Hume.”
“From our work on major data centre and urban development programs, TBH has seen how misaligned infrastructure planning can stall broader economic development,” he said. “What’s needed is a coordinated pipeline approach, not just asset-by-asset approvals, to balance water, energy and land use across the region.”
Planning, councils and coordination
The challenge of balancing digital demand with long-term liveability has seen some developers bypass local councils by going directly to state planning ministers. Hammond believes such measures can be double-edged: “While there are instances where fast-tracking through the planning minister is necessary to avoid unnecessary delays to critical infrastructure, bypassing councils entirely can lead to a breakdown in long-term planning and local trust.”
Hammond said councils represent the communities most affected by these developments and bring valuable insights around infrastructure, land use and environmental impacts. “In our experience, the best outcomes occur when councils are involved early, not as gatekeepers, but as informed contributors to a shared vision. Striking the right balance ensures projects move at pace without losing sight of broader liveability and sustainability goals,” he said.
This balance is particularly relevant in Melbourne’s west, where Hume Council recently voted on a new water and energy management plan in response to multiple data centre applications, as reported by the ABC. The local pressure mirrors that of Sydney’s outer suburbs, where rapid digital infrastructure growth has also threatened to outpace housing supply.
Recycled and stormwater as default
Water consumption is not only a constraint, it is increasingly a reputational issue for developers. Hammond sees recycled and stormwater sourcing as essential to future-proofing projects. “It is not only feasible, it is increasingly expected. Across projects we support in Australia, the Middle East, and Asia, we are seeing clients integrate recycled and stormwater harvesting into their designs from day one, particularly in jurisdictions with water stress,” he said.
“Melbourne has the capability and infrastructure to support alternative water sourcing, but it requires stronger policy signals and planning conditions to make it the norm,” he added. “Building a water-efficient data centre is no longer a sustainability choice but a prerequisite for financing and social licence to operate.”
He has previously highlighted the opportunity scale, noting Melbourne’s desalination plant produces 150 gigalitres annually, while stormwater harvesting could deliver twice that amount without the same energy burden. The barrier lies less in technology than in policy frameworks and investment appetite.
Building trust with communities
In the context of rising public scrutiny, data centre developers also face the question of social licence. Hammond stressed that water transparency is central to trust: “Trust comes from transparency, and that starts with sharing real data, not just design intent. Developers need to engage early, disclose expected usage profiles, and show what steps they are taking to minimise potable water reliance.”
He added: “In our due diligence and planning work with major developers, we recommend clear commitments to water intensity benchmarks and alternative sourcing pathways. Trust is built when operators not only meet their licence conditions but proactively contribute to the resilience of the broader system.”
The importance of trust is underscored by recent reporting from the ABC, which revealed forecasts that AI workloads alone could end up consuming a quarter of Sydney’s water supply within a decade. Such figures highlight why public perception and community engagement are becoming strategic as well as operational concerns.
Coexistence or competition?
At the heart of the debate is whether housing and data centres are destined to compete for resources. Hammond believes coexistence is not only possible but essential: “They can, and must, co-exist. The future lies in shared infrastructure models, where data centres, industrial users and housing developments align around circular systems for water, energy and waste,” he said.
“TBH has worked on precincts where stormwater harvesting, district cooling and smart grid integration reduce load on shared infrastructure and unlock new development capacity,” he said. “The challenge is not competition, but coordination, and that is where long-term infrastructure planning and shared investment come into play.”
This view echoes his call for circular design in urban planning, where suburban grey and black water could be treated locally, combined with rooftop solar and decentralised water systems to create integrated communities. Such models demand early collaboration between government, utilities, developers and communities rather than piecemeal approvals.
A smarter, shared future
Hammond’s position is clear: the intersection of data centre growth and housing expansion does not have to become a zero-sum game. But it requires deliberate action. “We need a proactive, integrated approach that brings all stakeholders together from the beginning. Everyone needs to be at the table early; developers, infrastructure providers, planning authorities,” he said.
“You don’t solve this by looking at housing separately to industrial development. It has to be a shared effort from the outset,” he added.
As Melbourne’s data centre pipeline grows and community pressures intensify, the debate around water is no longer secondary to power. It is a test case for how Australia balances the competing yet interdependent needs of its digital economy and its urban future.