Wealthy Sydney areas, including the eastern suburbs and the north shore, are expected to experience a building boom of mid and high-rise units, thanks to the New South Wales government’s transport-oriented development (Tod) zones.
But developers say the policy could lead to a slowdown in development in other, less affluent, parts of Sydney, as companies chase higher returns from more expensive apartments.
Of course, more apartments – anywhere – are generally welcomed. But will the Minns government’s plans benefit first home buyers struggling to enter the market?
Is NSW meeting its housing targets?
The premier, Chris Minns, has talked about turbo-charging housing construction and lowering prices for young people, so they stop leaving NSW for other states. But in September, there were some depressing statistics.
NSW needs an average 7,164 new homes to be completed each month to be on track to deliver the 377,000 homes it has promised by 2029 under the national housing accord.
But the latest data from the Australian Bureau of Statistics, released in September, showed 3,637 dwellings were approved in NSW in August, down 6% on the previous month. It followed a 10% fall in July.
The declines are concerning because approvals are the pipeline for tomorrow’s housing supply. And things are expected to worsen before they get better.
It takes time to build houses, and even more time to construct a block of units, let alone a planned community.
For example, the $218m Danks Street District project in the inner south suburb of Waterloo, will deliver 373 apartments in six new high-rise apartment blocks of six to 20 floors.
The site was sold by Sydney Water in 2014, the development application was lodged in 2021, final approval came in 2024, with construction starting this year. It’s due to be completed in 2028.
So what’s going wrong after three years of Labor vowing to remove development roadblocks?
The construction and development industry says streamlining regulation is important, but its problems extend beyond red tape. It’s about the cost of building materials and razor-thin returns. It can be hard to make the maths work, particularly in Sydney, they say.
First, the good news
The Property Council of Australia’s NSW executive director, Katie Stevenson, says the state government’s recently announced – but not yet passed – changes to the planning system will make a big difference.
“The bill tackles the very issues holding up housing delivery – from clearing the backlog of simpler projects to unblocking complex projects that can deliver hundreds of homes and jobs,” she says.
Housing development in the north-western Sydney suburb of Box Hill. Photograph: Red Square Media/The Hills Shire Council
For big projects, there are several important changes, including a proposed Development Co-ordination Authority – essentially a one-stop shop – to centralise and speed up approvals from other agencies, including Sydney Water and the Rural Fire Service.
The government has also formalised the Housing Delivery Authority, which is a fast-track for major housing projects costing more than $60m.
Despite some ministers occasionally implying that it has “approved” 187 major residential proposals, the three-person panel acts as a gateway to the fast-track for so-called state-significant projects. The NSW planning department then aims to approve within 275 days.
The cost of holding land while waiting for approval is significant, so this could make a real difference. NSW has the slowest approval times of any state.
But councils are not happy with losing control over who approves large residential developments, particularly given they are responsible for supporting services, such as roads, parks and libraries.
Councils claim they have been unfairly blamed for delays in getting projects out of the ground.
Michael Edgar, the general manager of The Hills Shire Council, says there are 17,000 apartments and homes approved by his council that are not yet built.
“I suspect there would be similar numbers in council areas in western Sydney,” he says. “We have also rezoned land for a further 70,000 homes.”
The Box Hill residential subdivision was rezoned in 2013 with a target of 16,000 homes. Almost 12,000 homes will be built by the end of 2025, but the new primary and high schools, as well as the town centre, aren’t due to be completed until 2028.
Edgar says there are many reasons why developers don’t start building that are out of the control of councils.
The Box Hill site. ‘Construction costs remain more than 30% higher than pre-pandemic,’ the Property Council of Australia’s NSW executive director, Katie Stevenson says. Photograph: Red Square Media/The Hills Shire Council
It’s about cost as well as the red tape
“Even with a streamlined system, projects won’t move if they don’t stack up financially,” the property council’s Stevenson says.
“Construction costs remain more than 30% higher than pre-pandemic, interest rates remain elevated, and labour shortages are pushing timelines and budgets out.”
Robert Furolo is the executive manager of corporate communications at Deicorp, one of Sydney’s biggest developers. He says the NSW productivity commissioner identified that the cost to deliver a standard two-bedroom apartment – including financing, land, designs, materials, construction, fees, contributions and taxes – plus a reasonable return on capital was approximately $900,000.
“Developers need to find suburbs where the market can pay at least this much … to make projects feasible,” Furolo says.
“The cost to construct an apartment in Sydney is the same whether you are building in a suburb where you can sell it for $1.5m or $750,000. Unfortunately, with delivery costs still so high, projects are viable only in areas where the sale price exceeds delivery costs. In today’s market, this excludes large parts of western and south-western Sydney.”
A 2024 report into housing supply challenges urged the NSW government to relax planning controls in areas where development was most feasible – notably the eastern and northern suburbs close to the CBD.
The report found that more infill would lead to a fall in home prices on the urban fringe, “reducing the incentive to hoard or speculate” in outlying areas.
The NSW planning minister, Paul Scully, says the Minns government is focused on “restoring housing choice and diversity”.
Labor wants to rebalance “housing growth in Sydney towards existing infrastructure and, where there has been big infrastructure investment like the metro, fill a gap in new housing supply that had been left unaddressed for decades”.
“The Liberals and Nationals focused all the housing growth in greenfield areas on the fringe of Sydney without a thought to infrastructure,” Scully says.
The minister argues policy changes are designed to work together to drive increased supply in every corner of NSW and at every level of the market.
The lure of water views
Guardian Australia talked to developers who say medium to high-rise development will quickly shift away from Sydney’s fringe and west – where land was cheaper – to wealthier areas that have been opened up as a result of the Tods.
“If I can accelerate my revenues because I have great views and a train station and shops, then I will be making a profit,” says CBRE’s senior director of capital markets, Alex Mirzaian.
“It really comes down to the three Ss: stations, schools and shops. Without amenity, units don’t sell.”
Infographic render of the new proposed Woollahra train station and surrounding areas. Photograph: Transport NSW
Take, for example, the half-built Woollahra train station on the eastern suburbs line, which the Minns government plans to complete, paving the way for 10,000 new homes over 15 years.
Despite requiring the acquisition of multimillion-dollar houses to build apartment blocks, Mirzaian says the area is attractive to developers because it offers the prospect of views, transport, schools – and proximity to the CBD.
Infrastructure fees – is there a better way?
Another cost often cited by developers is government levies, which are used to fund upgrades to roads and sewers, along with new libraries and schools, that are required by the increased population.
“The NSW government can’t control all the costs preventing housing delivery, but one lever they can pull right now is to limit the impact of property taxes and charges stifling development,” Stevenson says.
Savills’ modelling for the property council “shows that temporarily suspending new infrastructure charges and faster planning approvals could support the delivery of more than 100,000 additional homes by 2029,” she says.
“This research clearly demonstrates government taxes and charges are in some areas adding up to 40% to the cost of construction of new homes.”
Of course, someone has to pay for infrastructure and with big budget deficits, it’s unlikely that either the NSW government or councils will want to pick up this multibillion-dollar tab.
Helping developers realise their projects
The NSW government has already moved to try to help developers finance their projects through the $1bn pre-sale finance guarantee. Under the program, the government promises to buy units off the plan, so a developer can meet its bank requirement to pre-sell a majority of units.
In practice, the government hopes it doesn’t actually have to buy the homes and that they will all be sold on the open market. But by using the state’s financial clout, it aims to get projects over the line.
The program is now open for expressions of interest and there have been 20 applicants so far.
Planners and councils also point to the government’s pattern book of pre-approved, architect-designed plans for townhouses, terraces and mansion houses, as a good step towards cutting costs – and time.
The designs can be bought for $1 until the end of January 2026 (then they’ll cost $1,000) and are quickly approved as complying developments, provided the block is suitable. More than 14,000 plans have been bought so far.
Furolo says perhaps it’s time to think outside the box on other construction requirements that add to costs.
Deicorp is using off-site construction of bathrooms for apartments where possible, he says. The NSW government is exploring modular development for some of its social housing projects.
Other suggestions include building car parks on the first three or four floors of a building and making it higher, instead of excavating, saving roughly $90,000 per unit.
Some developers are pushing for smaller, well-designed units with just one bathroom, down from the current 70 sq metres-minimum currently required for two-bedroom units in NSW.
Leverage government land to bring down prices
Since coming into office, the Minns government has identified dozens of sites surplus to government needs and has begun selling them off – but usually to the highest bidder.
Could this land be used more creatively to drive affordable housing?
A spokesperson for the minister for lands, Stephen Kamper, said none of the larger sites, which are being offered via an expression of interest process, have been sold.
“When a suitable delivery partner is identified, contract negotiations will ensure the best possible housing outcome for that site,” they said.
Debate on the proposed changes to planning laws will begin next week in parliament.
