As Cities Turn to AI To Lower Housing Costs, Data Center Backlash Grows

As the housing rebellion against data center development gains steam nationwide, the AI technology they power may hold the solution to another problem plaguing the market: red tape.

Regulatory costs add $131,734 for a typical home—a significant portion of the $499,500 sticker price for an average house, according to a new survey from the National Association of Home Builders (NAHB). Those costs have jumped almost 40% in five years and now account for 26.4% of the average sales price of a home.

Those regulatory burdens are one of the primary drivers of the nation’s housing shortage, now estimated at more than 4.03 million homes, according to research from Realtor.com®. And by that measure alone, it might seem like the exact solution local governments should rush to adopt.

But at the same time, data centers are causing a crisis in their own right—robbing communities of their water supplies, spiking electric bills, and causing a whole host of other problems. Caught in a vise between high housing costs and soaring utility bills, communities are left wondering whether AI is actually solving the affordability equation, or just rewriting it.

How AI could bring down the cost of housing

To understand how AI could transform the market, one must first look at the sheer volume of bureaucratic friction currently baked into residential construction. Builders encounter regulatory costs at nearly every step of the process, according to the survey from NAHB—and at each of those steps, it comes at a price.

“As we all know, time is money, and a faster, more efficient permitting process means more money in the pockets of everyone along the chain,” Jacksonville, FL, Mayor Donna Deegan said in August.

In 2025, her office announced an eight-point plan to streamline review and permitting processes in hopes of addressing the local housing crisis.

Currently, the city faces an estimated shortage of some 50,000 affordable housing units. In Jacksonville, that means a home would need to cost no more than $1,750 per month, based on the local median household income of under $70,000 and the 30% rule—the standard economic threshold dictating that a household should spend no more than nearly a third of its income on housing.

Meanwhile, the median home costs roughly $300,000 there—which would cost over $2,000 per month in principal and interest alone, assuming a 10% down payment and current mortgage rates of 6.5%.

Through that lens, it’s easy to see how red tape and its associated costs are jeopardizing the city’s affordable housing agenda by adding thousands of dollars to final home prices and stretching completion timelines by months.

In response, point four of Deegan’s strategy introduced the idea of bringing AI into the regulatory fold.

“AI-driven tools are being explored to improve comment analysis and permitting efficiency before plans reach a human reviewer,” her plan read.

“We know from our conversations with folks in the industry that this process was taking too long for many years,” Deegan added. “Time is money in business, and delays mean lost revenue for businesses, whether it is home sales, rental units, or retail space. This exciting new plan brings more people, resources, and technology to the process to make it work more efficiently for the developer community, city staff, and all our citizens.”

The mayor’s office is already reporting early success. The technology is reported to have saved the city more than 600 hours by automating reporting and real-time dashboards that track the city’s progress and boosting the share of permits approved on the first submission, according to Microsoft, one of the city’s AI partners.

The city also recently announced onboarding another AI partner, SwiftGov, to add to those gains by AI-assisted reviews of development plans that will speed the compliance timeline from weeks or months to mere minutes.

“Our goal was simple: Make the process faster, more transparent, and easier to navigate for residents, businesses, and builders alike,” said Jacksonville Chief Information Officer Wanyonyi Kendrick. “With technology, we are handling higher volumes, while delivering dramatic improvements in speed and service.”

The cloud hits a wall

But those gains stand in stark contrast to conversations around the country that are raising the alarm about the harms of AI and the data centers that power the technology.

Part of the pushback seems to stem from their growing footprint. Today, there are more than 3,069 data centers in operation in the U.S., and an additional 1,489 are planned or under construction. Microsoft Azure’s cloud business (one of Jacksonville’s partners) alone relies on as many as 500 data centers across 80 regions, according to Windows Central.

As AI companies rush to hyperscale their capacity, city halls are being inundated with residents asking lawmakers to regulate them. Just this week, Monterey Park, a community in Southern California, became the first to permanently ban data centers.

The pushback there centered on the resistance that’s being raised across the country: concerns about the impact on water supplies, utility bills, and other environmental concerns.

"Data centers bring no long-term benefits to local communities, and they come with serious risks," one resident said in a comment session posted by Monterey Park Mayor Elizabeth Yang who opposed the development.

"Landslide win!!" she added shortly after the ban was passed. "Congratulations to our city Monterey Park on making history!!!"

It’s a sharply different tone to that in Jacksonville, but Monterey Park faces a crisis of its own. Currently, the city is staring down a mandate to build more than 5,000 new residential units by 2029 to meet state obligations. 

The median home value there is about $863,000, according to data from Realtor.com—well above the national median of $425,000. Applying the NAHB’s estimate that regulation accounts for 26.4% of a home's final price, an estimated $227,800 of that sticker price is pure red tape.

That tension highlights the central paradox facing city halls. Communities desperately need to build affordable homes to meet mandates and ease pricing pressures, but the very technology that could offer a solution is causing its own crisis.