The Sydney housing reform set to be scaled back

The NSW government is preparing to pare back the second stage of the politically contentious “missing middle” housing reforms, compounding doubts about the ability to build 322,000 homes across Greater Sydney and its surrounds by 2029.

The move to scale back reforms for medium density near transport hubs came as Urban Development Institute of Australia (UDIA) NSW predicted the state would fall 115,000 dwellings short of the National Housing Accord target. The shortfall was driven by 60 per cent of councils tracking behind the level of development activity needed to meet their targets, with Ku-ring-gai, Bayside and North Sydney the worst performers.

The housing accord progress report, which assessed Department of Planning, Housing and Infrastructure data, showed the Greater Sydney “mega-region” – which includes areas north of Newcastle and the Hunter Valley – was already 25,000 determined dwelling approvals behind what was needed by now to reach the state’s supply goal.

Expected to deliver 112,000 homes by July 2029, the low- to mid-rise reforms were central to the Minns government’s efforts to increase density in inner-city suburbs. The policy created a radius of 800 metres around public transport hubs and shopping districts for rezoning, allowing for apartments up to six storeys in well-located areas.

Announced late last year, the policy was considered the most contentious of the government’s suite of reforms. The first stage, enabling dual occupancies and semi-detached dwellings across most of NSW, began in July. But the second stage, creating greater density near town centres and transport hubs through more terraces, townhouses and small apartment blocks, will probably be trimmed.

The implementation was deferred until after the September local government elections because of a fierce pushback from councils that said the policy was too unwieldy.

A departmental “policy refinement paper” was leaked in late May and reported by the Herald. The 24-page document outlined plans to exclude several types of land, including stations and town centres. There would be further consultation with councils.

It included reducing the impact of “general residential” areas common in the City of Sydney and the inner west after concerns the construction of four- to six-storey apartments would be discordant with terrace and single-storey homes.

Workshops have been undertaken with the 49 local governments that submitted feedback over the preceding several months.

Multiple planning sources, speaking on the condition of anonymity due to the sensitive nature of the deliberations, said the policy would limit the radius by tightening up definitions around how frequently transport ran, and the size of shopping centres that would qualify. One source suggested the policy would not be released until early 2025, as opposed to the end of the year as initially promised.

The government’s missing middle reforms will be pared back under proposed changes likely to be announced in early 2025. Credit: Jessica Hromas

Planning Minister Paul Scully and the Department of Planning, Housing and Infrastructure were asked whether the second stage of the reforms would deliver the same number of dwellings. Neither responded to those questions.

Scully instead said the government was “committed to low and mid-rise reform” with the second stage of the policy “currently being finalised”.

The departmental spokesman said: “Stage 2 of the low and mid-rise reforms are being finalised with consideration being given to feedback from councils, industry and the community.”

The UDIA’s analysis forecast that under the current trajectory of development application (DA) approvals, there would be a maximum 257,000 dwellings completed by 2029. This number fell to 205,000 if the historical 20 per cent trend of DAs that did not progress to construction continued over the housing accord period.

Given the average construction time for houses, the analysis factored in DAs determined in the 18 months preceding the accord period in July and limited the reporting to January 2028. This means councils would have needed to have approved 35 per cent of dwellings by this point.

Of the 10 worst performing councils, Ku-ring-gai had approved 12 per cent of its 7600 dwelling target, followed by Bayside with 13 per cent of its 10,100, level with North Sydney’s 13 per cent of its 5900. Many of these councils had their housing targets dramatically increased by the state government in late May.

Blue Mountains was the best performer, having already approved 84 per cent of its 600 target, while of Mosman’s 500 target, 62 per cent had been determined. The average for all local government areas was 27 per cent.

UDIA NSW chief executive Stuart Ayres said the shortfall in supply would result in fewer affordable homes.

“While it is still early days, every quarter we miss our targets makes our housing delivery challenge even harder. At this rate, the premier and planning minister will face a climb steeper than Mount Everest to deliver their housing targets by 2029,” he said.

The state government’s two-tiered transport development zones, the other pillars of the reforms aimed at addressing anemic housing supply in Sydney, are forecast to contribute only 26,400 dwellings by 2029, leaving the missing middle reforms to contribute the bulk of housing.

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