A spokesman for Lord Mayor Clover Moore said council didn’t have the power to shut down dodgy operations.
"While all councils do have the ability to go to a premise and knock on the door and ask for an inspection, we can't come in and enforce an inspection," he said.
The council carries out inspections of backpacker accommodation and boarding houses, he said, but property owners can deny council staff access, which means a court order is needed.
"This gives landlords doing the wrong thing the opportunity to evict tenants and remove evidence we need to prosecute them," the spokesman said.
He described Ms Goward's plans as "a bit of a thought-bubble, and rather heavy handed" but said the council welcomed co-operation with the state government.
"The most effective way to tackle this problem would be for the state government to work with local governments to give us the powers we need.
"Overcrowding in private properties is a difficult issue all local councils face.
"We need state legislation to give local government stronger powers to do on-the-spot inspections of properties that are suspected of doing the wrong thing."