Building more homes where people want to live

About the paper

This paper is part of a NSW Productivity Commission series that considers how to make housing more affordable and make best use of Sydney’s infrastructure.

Housing supply in NSW has not kept up with increases in demand, resulting in consistent upward pressure on house prices and rents. The NSW Department of Planning and Environment estimates NSW will require approximately 900,000 additional dwellings by 2041.

The Commission finds that the greatest effect on house prices could be achieved with a planning process that increases housing density in areas of highest demand, particularly in areas closest to the Sydney CBD. Doing this would require changing current regulations on building houses in ways that allow more people to build more homes in the right places.

Key findings

  • To build more housing in Sydney’s existing housing areas, we should:

    • raise average apartment heights in suburbs close to the CBD and job opportunities

    • allow more development near transport hubs to leverage existing infrastructure capacity

    • encourage townhouses and other medium-density development and allow more dual-occupancy uses such as granny flats where increased density is not an option.

  • Sharp increases in NSW rents in recent years show how growing demand can worsen housing affordability when housing supply is unresponsive to changing market conditions.

  • NSW’s low rate of housing construction has contributed to increased prices as limited housing stock makes existing houses more expensive.

    • NSW builds fewer homes compared to other states. Since 1992, NSW has built six dwellings per 1,000 residents on average. Victoria and Queensland have built around eight and nine per 1,000 respectively.

    • Available Australian analysis suggests that a 10 per cent increase in national supply reduces the cost of housing by 25 per cent.

  • Allowing more supply in high-demand locations can improve affordability even for households that cannot currently afford to live there – this process is known as ‘filtering’.

    • In ‘filtering’, new high-quality housing is occupied by high-income households, freeing their former dwellings to be occupied by middle- to high-income households at a reduced cost. In turn, these households leave dwellings that can be occupied by lower income families, reducing burden for social and affordable housing.