Pay more for your water or boil it? The unpalatable choice behind Sydney’s water woes

In March 2021, as “one-in-100-year” floods across Sydney’s eastern seaboard followed hard on bushfires and drought, Sydney Water and the then-Coalition government were preparing for the worst: telling some of the 5 million users to boil their drinking water to ensure its safety.

“This is something you’d only expect in the Third World,” said one source, speaking on the condition of anonymity to detail private deliberations.

The narrowly avoided boil water notice, exceedingly rare for a state capital, would have been the first in Sydney since 1998, when a citywide warning was issued after pathogens that can cause nausea and severe diarrhoea were detected in supply from Macquarie Street to Palm Beach.

Former NSW planning minister Craig Knowles (far left) is briefed during the 1998 water crisis. The incident caused international embarrassment in the lead-up to the Sydney Olympics.Credit: Julian Andrews

Now, Sydney Water has begun briefing stakeholders that a draft decision by pricing regulator IPART, slashing the state-owned utility’s planned capital expenditure by 35 per cent, or $5.9 billion, again raises the risk of Sydneysiders having to boil water during extreme rainfall events.

The problem: the state-owned corporation funds infrastructure upgrades through raising water bills – an unpalatable choice for any government – and Sydney Water was proposing a 50 per cent increase over five years.

NSW Premier Chris Minns wrote to IPART in August, urging it to make “cost-of-living impacts” a first-order consideration. Released in May, IPART’s draft determination proposed limiting household bill rises to 23 per cent. The final decision is expected in September, with increases taking effect on October 1.

Experts and peak bodies say the fallout will be twofold: reduced expenditure will limit the renewal of ageing pipes, plants and sewers with potentially disastrous consequences, and investment in new infrastructure will not be enough to support NSW’s commitment to build 263,000 homes across Sydney Water’s network by 2029.

The question for bill payers is this: should we get used to paying more for water to secure its supply now, or risk passing on the cost, and possible catastrophe, to future customers?

And in a housing crisis, Sydney Water and its stakeholders are asking why the government and IPART have pulled the handbrake on critical infrastructure for the construction of homes.

Support for housing growth

Housing supply is at the centre of Sydney Water’s price proposal – the areas it covers will contribute most of the state government’s commitments under the National Housing Accord.

Before this year’s budget, NSW Treasurer Daniel Mookhey enthused that the next 10 years would be about delivering the “pipes and poles” for much-needed housing, saying the government’s “rule of thumb” was that anything former Labor premier Neville Wran built in the 1970s and ’80s would be replaced.

But the 2025-2026 budget did not deliver any significant funding to make up the expenditure reduction proposed by IPART’s draft determination. Many of the experts interviewed for this article said the Minns government’s housing targets were not achievable with this reduced capital.

NSW Premier Chris Minns wrote to IPART ahead of its draft determination in May, urging it to consider cost-of-living pressures in its decision.Credit: Sam Mooy

Urban Taskforce chief executive Tom Forrest said IPART’s proposal would deliver considerably less than 263,000, or even the 191,000 he considered realistic in the current market.

“You can’t say we’ve got a housing supply crisis, and it’s the biggest challenge that our government faces, and then say: ‘Oh, but we’re not going to fund Sydney Water, and we’re not going to allow [it] to raise the money through rates,’ ” Forrest said.

University of Sydney professor Stuart Khan says reduced expenditure could lead to water infrastructure lagging the demand for housing.

Without adequate funding for infrastructure, building houses in growth areas would be irresponsible, said Stuart Khan, head of civil engineering at the University of Sydney.

“We definitely don’t want to get into a situation where wastewater infrastructure lags behind housing infrastructure. We’ve seen that happen in parts of Sydney,” he said.

Inner Sydney councils including Woollahra have already expressed concern about a possible strain on water infrastructure from new dwellings in their objections to the government’s low- and mid-rise housing reforms. But LGAs such as Wollondilly on Sydney’s south-western fringe are evidence of the problems that could eventuate if water infrastructure does not keep up with housing demand.

The shire contains two areas rezoned in 2023 as growth areas, in the towns of Wilton and Appin. In Wilton, where the population of 5000 is expected to multiply elevenfold by 2040, 12,000 lots without wastewater connections were rezoned as residential, meaning newly built houses now have their sewage trucked out regularly.

Wollondilly Shire Mayor Matt Gould says a lack of water infrastructure is limiting the LGA’s ability to deliver housing.Credit: Oscar Colman

Wollondilly Shire Mayor Matt Gould said work to temporarily expand a nearby treatment plant would only be able to service three-quarters of the lots once complete.

“We’re willing to do our fair share to address the housing crisis, but we have an infrastructure crisis that is preventing the capacity to ... deliver.”

So what has given the state government and IPART the confidence that housing can be delivered without the infrastructure? Outdated housing forecasts, said Property Council NSW executive director Katie Stevenson, noting IPART’s draft decision is based on the Greater Sydney Housing Supply forecast in 2023, which “came well before the NSW government’s major suite of housing reforms” and predicted 172,900 homes over the six years to 2029.

But the modelling underpinning IPART’s draft report takes a more conservative approach, estimating 120,000 additional homes will be built by 2029.

Sydney Water based its pricing proposal on the government’s updated commitment. Peter Davies, a professor of sustainability at Macquarie University, said the state government and IPART had rewarded this foresight by leaving the utility “between a rock and a hard place”.

A spokesperson for the Minns government rejected the 120,000 figure, saying an assessment by Infrastructure NSW had found housing from its transport-oriented development and low- and mid-rise rezoning could be accommodated “without the need for major new water infrastructure investment”.

“Sydney Water has a responsibility to ensure that its water infrastructure pipeline does not hold up the delivery of new homes,” they said.

Sydney’s drinking water supply system has been developing since 1859, when the Crown Street Reservoir, the oldest one still in service in Australia, was built.Credit: Robert Pearce

Upgrading Sydney’s ageing water infrastructure

Sydney’s water infrastructure is, by modern standards, ancient.

The CBD’s Bennelong Point Sewerage System became the first planned system to dispose of Sydney’s sewage in 1857, one year before the construction of London’s modern sewerage system. It still handles stormwater today.

But Khan said most infrastructure went in 50 years ago. “It’s coming up towards end of life, or it’s gradually going to reach end of life over the next 20 or 30 years,” he said.

Stuart Wilson, deputy director of the Water Services Association of Australia (WSAA) said no one, including IPART and the state government, was denying the need to renew this infrastructure.

“It’s an argument about in this three- to five-year period or the next three- to five-year period … For a relatively small benefit from deferring … what risks and costs are you running with the system?”

Australian Water Association chief executive Corinne Cheeseman said the main Sydney Water accountabilities that IPART’s decision considers are “to deliver clean and safe drinking water, but also to maintain our sewer system so we can protect the environment”.

Bondi’s waste water treatment centre, which processes the effluent produced by about 750,000 Sydneysiders, began operations in the 1950s.Credit: Steven Siewert

“Eighty per cent of our drinking water supply comes through Prospect Water Filtration Plant,” she said. “It’s a very good water filtration plant, but we’ve had significant flood events in the last three years.”

Flooding can overwhelm the plant’s capacity and lead to increased “turbidity” or cloudiness, as debris and, recently, bushfire ash are washed into the water supply.

In its price proposal, Sydney Water proposed upgrading pre-treatment at Prospect for $697 million. IPART’s draft determination proposed deferring this program, noting that Prospect had survived historical adverse events without boil-water notices.

“Weather variation creates uncertainties that may challenge Sydney Water’s ability to survive sequential adverse weather events as climate change advances,” the report conceded.

The Warragamba Dam, which spilled this month, was at only 43.9 per cent capacity in 2019. It was completed in 1960.Credit: Nick Moir

Cheeseman said sewage spills from clogged pipes, resulting in environmental and drinking water contamination, could become common, especially given IPART’s draft proposal slashed Sydney Water’s plans to renew high-risk areas of the network by between $1 billion and $1.9 billion, or between 18 and 34 per cent.

Ian Wright, a professor of environmental science at Western Sydney University who worked for Sydney Water between 1989 and 2006, said more frequent flooding and drought cycles brought on by climate change justified the utility’s proposal to expand the use of the once-controversial Sydney Desalination Plant drinking water within its network.

The plant, which cost the state government $1.9 billion to build before it was leased privately in 2012, can supply up to 15 per cent of Sydney’s drinking water, but contributed 6.7 per cent of Sydney Water’s drinking water in 2023-2024, according to the utility’s most recent annual report.

IPART’s draft decision deferred most of the involved expenditure to the next price proposal, leaving Sydney’s drinking water reliant for now on the ageing Warragamba Dam, which spilled this month, but was at 43.9 per cent capacity as recently as 2019.

“We’ve gone into a flooding cycle, but we will go back into a dry cycle … Our last big addition to the water supply was Warragamba … It was completed in 1960.”

Who should bear the cost?

Under Sydney Water’s model, customers cover most capital expenditure on renewal and growth of infrastructure.

Most of the experts interviewed for this article agreed that water bills had been too low for too long. Simon Fane, a UTS associate professor who advises water utilities and governments nationwide, characterised the problem as “multiple layers of people not wanting to put up bills”.

“For the last few years, the water industry has known that things were going to get more expensive, but haven’t really been flagging enough.” There was a real increase of only 18 per cent in the median typical residential bill in NSW in the 20 years to 2024.

WSAA executive director Adam Lovell said customers who can pay, “should pay, but those customers who can’t, there are well-established and well-proposed programs to help them into the future”.

In 2024-2025, the government spent $130 million on concessions for pensioners and $17 million on exempt non-profit organisations serviced by Sydney Water, and $2 million on other hardship programs across Sydney Water and Hunter Water.

There are alternative methods of generating funds. Wilson said in the case of new infrastructure, funding could come from the developers who benefit, while funding for both growth and renewal could come directly from the government.

The latter was an idea echoed by NSW opposition water spokeswoman Steph Cooke. Cooke criticised price increases for consumers, saying IPART’s “serious rebuke of Sydney Water’s proposal” had spared them an 18 per cent rise, but “left a $6 billion hole in Sydney Water’s capital works program”.

“If Labor won’t allow Sydney Water to manage its business properly then it needs to invest more from the state budget to support enabling infrastructure, like water, for new homes,” she said.

Macquarie University’s Davies had a more radical suggestion: to tax some of the value developers receive from rezoning, which would result in multimillion-dollar windfalls.

“Essentially, what we do in that [current] process is we privatise the profit,” he said.

With both Opposition Leader Mark Speakman and NSW Premier Chris Minns looking to pick up seats at the 2027 election, it is unlikely either would run on a platform of higher water bills.Credit: James Brickwood, Edwina Pickles

‘Multiple decades, not political cycles’

With the Minns minority government looking to pick up seats at the 2027 election, the chance of Labor or the Coalition campaigning on higher water bills is small.

Try telling residents without wastewater connections in Wollondilly, many of whom would not have been connected under Sydney Water’s proposed works, to pay higher bills, Gould said.

But many, including Davies, raised concerns about the premier’s proactive role in influencing IPART’s decision, resulting in cheaper bills now, but risking generational inequity later.

“I see IPART making decisions that then have a political overlay of government … four-year horizons … where you might have a large utility that will think in multiple decades, not political cycles,” he said.

Asked about the premier’s influence, an IPART spokesperson said its draft decision recognised Sydney Water’s need to increase revenue to deliver safe water and infrastructure to keep up with growth, but that “customers should pay only what Sydney Water requires to efficiently deliver these services”.

Fane is frank about Minns’ letter: “That might get us through the next election, but it won’t get us through the next drought.”

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