It costs $75,000 less to build a new home closer to Sydney CBD

With Sydney’s population expected to grow by more than a million people by 2041, building closer to the city, where infrastructure is already established, will end up being more cost-effective than continuing to build further out, according to a new report.

The NSW Productivity Commission report titled, Building more homes where infrastructure costs less, found that housing built closer to the Sydney CBD, could end up saving $75,000 in infrastructure-related costs per home.

According to the report, the infrastructure costs that weigh on new homes include things like the economic cost of road congestion and crowding on trains, the costs of upgrading schools, the costs of new water and wastewater connections and the purchase of land for public open space.

NSW Productivity Commissioner, Peter Achterstraat said with the high demand for new homes, the location of new builds is going to be critical. 

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

According to the report, the economic costs of building across Greater Sydney vary 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,” Mr Achterstraat said.

“More homes close to jobs also means shorter travel times.”

He said most of the variation in infrastructure-related costs between areas relates to local traffic congestion and wastewater costs, followed by school infrastructure and green space costs. 

“Building more homes in inner-ring suburbs, close to jobs and public transport, creates less than half the extra congestion cost of building in outer areas,” he said.

“Providing water and wastewater infrastructure is more expensive away from the coast, particularly in hilly or environmentally-sensitive areas. 

“Water and wastewater infrastructure costs around $13,000 per new dwelling in established areas, particularly south of Sydney Harbour, compared to $42,000 in outer areas like Hornsby.”

Mr Achterstraat said limited capacity in existing schools makes growth in the north-west and outer-south more costly. 

“In the Pennant Hills-Epping, Manly, Pittwater, and Hornsby areas, the combined cost of extra primary and secondary school infrastructure is more than $20,000 per new dwelling, compared to less than $10 per new dwelling in the Fairfield area,” he said.

He said that public open space is also an additional cost that needs to be factored in.

A previous report also found that 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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