Last week, the Reserve Bank reminded everyone who really sets the temperature in property.
On 3 February 2026, the RBA lifted the cash rate by 25 basis points to 3.85%, a move it framed as a response to inflation picking up and staying above target for longer.
For households with a mortgage, it’s immediate pain. For the development sector, it’s something quieter and more consequential: another notch higher in the cost of capital, another squeeze on feasibility, another reason projects that “should” proceed don’t. And that’s the problem Sydney keeps refusing to face honestly:
We can approve our way to more homes. We cannot approve our way to affordability if the economics won’t fund the build.
Planning reform has been overdue in NSW for years. But credit where it’s due: the state now has two clean, legible pathways that materially change the old order.
The first is LMR (Low and Mid‑Rise Housing Policy): a push to normalise missing‑middle housing, rolled out in stages from 1 July 2024, with broader low‑ and mid‑rise controls introduced from 28 February 2025.
The second is the Housing Delivery Authority (HDA): a state-led “fast lane” designed to move major housing proposals into a streamlined State Significant Development process (including SSD with concurrent rezoning) where eligible.
On paper, this is the most coherent planning posture NSW has offered the market in a long time: more certainty, fewer veto points, clearer expectations.
So why does Sydney still feel like a city where the young are boarding a train into a future they can’t afford to live in?
Because planning is only the pathway to housing affordability. We still need fuel to get there.
THE NORTH WEST STORY: WHAT WE LEARNED WHEN WE TRIED TO DO THIS PROPERLY
The Sydney Metro Northwest corridor was meant to be the demonstration project; rail plus density, coordinated growth, a modern city doing modern city things.
The corridor strategy was finalised in 2013, with structure planning intended to guide precinct outcomes around stations including Norwest, Castle Hill, Cherrybrook and Showground.
If you were around for that era, you’ll remember the optimism and then the grind. Draft rezoning exhibited, submissions counted, controls adjusted, infrastructure lists compiled, politics negotiated.
And then, the line that sums up precinct planning in NSW better than any consultant diagram:
At Showground, a 5,000 dwelling cap was imposed when the precinct was rezoned because infrastructure wasn’t ready.
That’s not a planning failure. It’s a sequencing truth: zoning is not capacity unless the city is physically and financially ready for the people it claims it can hold.
It’s also a political truth: places like the Hills aren’t short on opinion. In suburbs built on the post‑war promise: land, space, privacy, density is read not as “housing supply” but as “threat to lifestyle and value.” That impulse is human. It’s also powerful enough to slow any reform that depends on local consent.
So NSW has moved some decision-making upward (LMR and HDA). Sensible. Necessary.
Still not sufficient.
THE ENGINE ROOM: FEASIBILITY DOESN’T CARE WHAT WE “NEED”
We can talk about housing targets and moral imperatives all day. The crane still goes up only when the deal makes sense.
And right now, three numbers describe the squeeze:
This is the dynamic the public debate keeps missing: higher rates don’t just cool demand. They also kill supply by raising finance costs, tightening lender settings, and stretching pre‑sales/leasing hurdles.
And the old Sydney cheat code, “don’t worry, end values always bail you out”, isn’t a law of nature. Over the long run, Sydney dwelling values have compounded at about 5.8% per annum (30 years to July 2022).
That’s strong. It’s just not magic. Not when build costs jump like they did. Not when the cost of money rises. Not when approvals take time and time costs money.
So yes: planning reform clears the path. But right now, the engine is labouring.
DEMOGRAPHICS: THE DEMAND LINE DOESN’T STOP, IT SHIFTS
Sydney isn’t dealing with a simple shortage. It’s dealing with a shortage colliding with demographic momentum.
NSW’s own projections point to a state growing to 10.07 million by 2041, with Greater Sydney reaching 6.3 million, growth driven primarily by migration.
Nationally, ABS estimated net overseas migration was 306,000 in 2024–25, and the Commonwealth’s Population Statement expects NOM around 260,000 in 2025–26, easing, but still substantial.
At the same time, fertility is forecast to fall to around 1.42 in 2025–26, and the population continues to age.
These trends matter because they change what “housing need” looks like on the ground:
And we’re already seeing the stress embedded in the data. In Greater Sydney, 35.3% of renter households were paying more than 30% of household income on rent in 2021, a standard indicator of housing stress.
In the City of Sydney, it was 33.0%.
This is not a fringe problem. It’s mainstream. It shows up in who stays, who leaves, and what kind of city Sydney becomes.
THE SOCIAL OUTCOME: A CITY THAT CAN’T HOUSE ITS OWN WORKFORCE
When housing becomes a rationed asset, the city starts sorting people.
Not into “rich” and “poor” in an abstract sense, but into “close” and “far,” “stable” and “precarious,” “time with family” and “time in traffic.”
AHURI’s work on key workers is blunt: teachers, nurses, community support workers and emergency services staff struggle to find appropriate and affordable housing; many are pushed outward and into longer commutes.
The report notes just under 44,000 key workers commute over 30km to work in Sydney, and just under 16,000 commute 50km or more.
That’s not just inconvenient. It’s a city slowly weakening its own operating system.
A city that can’t house its key workers close to where they’re needed doesn’t just get less “affordable.” It gets less resilient, less productive, and less fair, especially for the generation that doesn’t have a family balance sheet to fall back on.
THE MISSING REFORM: PLANNING IS THE PATHWAY, TAX IS THE FUEL
Now to the part politicians avoid because it’s genuinely hard.
If Sydney wants affordability, it needs more supply. If it wants more supply, it needs to make building financially viable in a world of higher costs and higher rates. That requires a re‑engineering of incentives, particularly the incentives that currently reward holding existing assets more than creating new homes.
The Treasury’s own explainer is clear: “negative gearing” is when expenses exceed income on an investment.
And the ATO is equally clear on the mechanics of the CGT discount for individuals (including the 12‑month holding requirement).
The policy point is not to demonise anyone who used the rules as written. The point is to ask, calmly, what those rules are achieving now, in 2026, under today’s conditions.
If the objective is housing supply, then the cleanest economic alignment looks like this:
Tie investment tax concessions to net new supply:
Not “property,” not “existing stock,” not "outbidding first‑home buyers for yesterday’s homes.” New dwellings, additional dwellings, supply that didn’t exist before.
Make rezoning a responsibility, not a lottery ticket:
If land is rezoned for development and simply warehoused, holding costs should rise meaningfully over time. Not as punishment, as a correction.Rezoning creates value through a public decision; it should also create an obligation to either progress delivery or release the land to someone who will.
This is where the generational piece becomes unavoidable.
Any serious reform will, by definition, be less aligned with the interests of those who already own high-value, low-density land in the city, a cohort that skews older and wealthier because of how long they’ve been in the market. That doesn’t make them villains. But it does mean the burden of adjustment can’t fall yet again on renters and first‑home aspirants who are already carrying the strain.
THE WAY FORWARD: A PRACTICAL, ADULT COMPACT
If NSW wants LMR and HDA to land as more than a planning announcement, the next chapter should be judged on completions and backed by a policy compact that makes delivery possible:
Sydney doesn’t need more slogans. It needs alignment, between planning, finance, tax, infrastructure, and the lived reality of younger households.
Because if we don’t fuel the engine, the pathway doesn’t matter. The train will keep arriving every four minutes. And each year, more of the people stepping onto that platform will realise Sydney has become a city you commute to, not a city you can belong to.
By George Tisseverasinghe
Partner, Development Advisory
Property-wise Feb-26
General information only, not legal, tax or financial advice. These are opinions on policy reform concepts and should be tested against current legislation and independent expert advice.
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