Building homes which are close to inner areas and the CBD in Sydney can save up to $75,000 per dwelling on infrastructure costs compared with delivering greater sprawl in outer-urban greenfield areas, a new paper estimates.

Published by the NSW Productivity Commission, the Building More Homes Where Infrastructure Costs Less paper aims to quantify the infrastructure related costs of delivering additional new housing across different areas of Greater Sydney.

Not surprisingly, it found that costs were lowest for homes which are delivered in the CBD and surrounding areas such as Redfern and Potts Point.

On average, the infrastructure cost associated with new dwelling provision in these areas came in at less than $40,000 per dwelling.

At the other extreme, infrastructure costs exceeded $100,000 in places such as outer northern and outer south-western areas in parts of the Sutherland Shire, the Hills Shire, Hornsby and the Northern Beaches local government areas (see map and chart).

Indeed, for new homes delivered in the Baulkham Hills, infrastructure costs amounted to around $114,000 per dwelling.

NSW Productivity Commissioner Peter Achterstraat said that building greater density in infill areas helped to make greater use of existing infrastructure.

He said the importance of delivering more homes in the right areas should not be underestimated.

“At least 550,000 new homes are needed across Sydney by 2041,” Achterstraat said.

“In this housing affordability crisis, it’s more important than ever to make sure new housing is built in the right areas and that we make the most of existing infrastructure.

“This paper investigates the costs of building across Greater Sydney and finds that the economic costs of growth, varies from $40,000 to $114,000 per home, with the lowest cost in areas near the CBD and increasing significantly moving north, south, and west.

“Building up in existing areas is cheaper because much of the necessary infrastructure, such as roads, public transport, schools, utilities, and open space, is already in place. More homes close to jobs also means shorter travel times.”

The paper comes as Greater Sydney faces significant long-term housing challenges.

Projections from the Department of Planning and Environment suggest that Sydney will need to deliver at least 550,000 new homes between now and 2041 (around 30,000 homes per year) just to meet demands of new residents and changing demographics.

That figure accounts for new demand only – it does not account for the need to address an existing housing shortfall.

In its Planning for Growth Paper released last year,  the Committee for Sydney estimated that Greater Sydney has an existing undersupply of 96,000 homes.

Simply looking at apartments alone, meanwhile, a separate paper released earlier this year be the Centre for Independent Studies argued that the city had a shortfall of 82,000 apartments.

All up, this implies that Greater Sydney needs to construct around 650,000 new dwellings each year to both accommodate new housing demand and address existing housing deficits.

The paper is the second in a series of five papers which is designed to provide evidence upon which to base housing policy decisions.

A previous paper released in May tallied the benefits of delivering more homes in higher-demand areas across Sydney as opposed to pushing new homes further away.

That paper shows that inner areas such as the Eastern Suburbs, North Shore, inner city and Inner West have the greatest unmet demand when it comes to where people want to live.

In its report, the Commission considered infrastructure costs across five areas.

These included:

• the economic costs, or impacts on individuals, of road congestion
• the economic costs, or impacts on individuals, of crowding on trains
• the costs of upgrading schools to take on new students
• the costs of new water and wastewater connections
• the purchase or contribution towards land for open space

Not surprisingly, road congestion and train overcrowding were the biggest drivers of cost overall and the most significant contributors to additional infrastructure costs in outer areas (see chart).

Still, other areas were significant.

Average costs associated with connecting new dwellings to water and wastewater infrastructure ranges from $13,000-$19,00 for established areas in and around the harbour to up to $96,000 in the case of distant development areas such as Appin and Gilead.

Meanwhile, the cost of school related provision (primary and secondary combined) amounted to less than $3,000 in areas such as Canterbury-Bankstown, parts of the Inner West, Inner South, and Eastern Suburbs which are typified by well located existing public schools which generally have available capacity.

This increase to more than $20,000 per dwelling in areas such as Pennant Hills-Epping, Manly, Pittwater, and Hornsby.

In particular, areas such as the North Shore and North West have fewer public schools (private schools were not considered).

These areas were built as low-density residential suburbs, where it was expected students could travel long distances to school by car or bus.

However, recent rapid development in these formerly low-density areas has led to very high enrolments in some schools, especially primary schools.

Achterstraat said it is important to build more new homes in the right areas.

“Our previous paper showed the Eastern Suburbs, North Shore, inner city, and Inner West have the greatest unmet demand when it comes to where people want to live. This paper suggests these areas also have the most existing capacity and are the most cost-effective areas to build in,” Mr Achterstraat said.

“Put simply, more housing in the right places, where people want to live, will improve affordability, reduce infrastructure costs, and limit the burden on taxpayers.”

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