The NSW government’s push to unlock density in Sydney’s inner suburbs hits a structural wall: when land trades at $15,000–$25,000 per square metre and construction runs $4,000–$6,000 per square metre, rezoning delivers supply but not affordability. A two-bedroom unit pencils out at $2.5 million to $3 million before marketing or profit, regardless of how many floors the zoning allows.
This is not a planning failure. It is an input-cost ceiling that no rezoning alone can breach.
How the numbers stack in practice
Take a standard inner-city development site: 1,000 square metres of land acquired at $20 million, rezoned to allow 50 apartments averaging 70 square metres each. Land cost per unit: $400,000. Construction at $5,000 per square metre adds another $350,000. Add $100,000 for site works, approvals, holding costs, finance. Before developer margin or sales costs, you are at $850,000 per unit in a best-case scenario.
That price floor assumes the developer works for free and the site had no acquisition premium. In reality, a 20 per cent developer margin and 5 per cent sales/marketing cost push the unit to $1.05 million. If the land was bought at a premium, common in contested inner suburbs, or construction hits delays, the number climbs past $1.2 million.
For larger units or sites with complex constraints (heritage overlays, contamination, narrow access), the floor moves to $1.5 million to $2 million. Premium inner suburbs with land over $25,000 per square metre push that to $3 million, exactly as the story brief flags.
Where rezoning helps and where it doesn’t
Density bonuses spread land cost across more units, which lowers the per-unit land component. A site that could previously deliver 20 units now delivers 50, dropping land cost per unit from $1 million to $400,000. That is a real saving.
But construction cost per square metre does not fall with density, it often rises. Taller buildings require lifts, fire systems, basement parking, structural upgrades. A six-storey block costs more per square metre to build than a three-storey block. The land saving gets partially eaten by build-cost increases.
The bigger constraint: construction and land are both near historic highs. Rezoning cannot change what builders charge or what landowners will accept. If the market price for inner-city land reflects its scarcity and location value, density alone does not make it cheap, it just means more expensive units.
The catch
- Rezoning spreads land cost, but cannot override the absolute cost of that land in high-demand suburbs.
- Construction at $4,000–$6,000 per square metre is the input floor, density does not reduce it and often increases it.
- Developer margins and sales costs add 20–25 per cent on top of hard costs, regardless of unit count.
- Premium inner suburbs with land over $25,000 per square metre will produce units starting at $2.5 million even with maximum density.
The missing pieces in the affordability equation
Three levers could shift the cost structure, none of which rezoning addresses directly:
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Land acquisition cost relief. Government land sold or leased below market, or inclusionary zoning requiring a percentage of below-market units in exchange for density, would lower the input floor. Without it, land trades at whatever the market will pay.
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Construction cost reduction. Prefabrication, streamlined approvals, bulk procurement, or direct government building programs could cut per-square-metre costs. Current settings offer none of this at scale.
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Subsidised or shared-equity models. Government co-investment, discounted loans, or equity stakes would close the gap between build cost and what buyers can pay. Rezoning delivers sites but does not fund the delta.
Rezoning is necessary but not sufficient. It creates the opportunity to build more; it does not change the cost of building or the price of land that opportunity sits on.
Who this affects and how
First-home buyers priced out of the inner ring face a choice: move further out where land is cheaper, or wait for a market correction that may not come. Investors evaluating new stock in rezoned precincts will pay the $2.5 million to $3 million price if yields and capital growth justify it, but that does not help affordability, it just reallocates who owns the supply.
Developers win if rezoning unlocks sites that were previously unviable, but the profit comes from selling at market rates, not from delivering cheaper units. Without a subsidy or land-cost intervention, they have no commercial reason to price below the cost structure.
Renters see more supply, which should stabilise rents if the volume is large enough, but that depends on how much actually gets built, how fast, and whether investor appetite holds.
What could derail the pipeline
Three risks over the next 12 to 24 months:
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Financing conditions tighten further. If serviceability keeps falling or construction finance becomes harder to access, fewer projects proceed even with zoning approval. Rezoning creates potential supply; it does not guarantee funded construction.
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Land prices stay elevated or rise. If vendors expect density bonuses to increase site value, they price that in. The saving from spreading land cost disappears if the land cost itself inflates in response to rezoning.
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Construction costs climb or labour shortages persist. Any increase in per-square-metre build cost flows straight through to unit prices. There is no buffer.
The base case is that rezoning delivers more units at market prices, which helps supply but does not lower the price floor. The downside is that projects stall because the numbers do not work even with density, leaving rezoned land undeveloped.
Practical steps for decision-makers
If you are waiting for rezoning to make inner Sydney affordable, the numbers say otherwise. New supply in rezoned areas will trade at $2.5 million to $3 million unless something changes the input costs or a subsidy bridges the gap.
If you are buying in these precincts, model what land and construction actually cost today, not what you hope policy will deliver. If you are a developer evaluating sites, density helps the return but does not change the price you need to charge.
For policymakers: rezoning works if paired with land-cost relief, construction efficiencies, or affordability mandates. Without those, you get more supply at unaffordable prices.
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General info, not financial advice.
