A downsizer trying to replace his old house with two apartments on the NSW Mid North Coast has been hit with a $265,000 building insurance bill for a $2.9 million build, forcing him to abandon plans for the project.

The NSW insurance slug is far higher than comparable building insurance in other states and is yet another example of how excessive costs and red tape are holding back much-needed new development despite efforts across the country to boost dwelling supply, industry players say.