The Missing Middle: Why Medium-Density Housing Costs Too Much to Build in NSW

If you've been looking for a townhouse, a duplex, or a small walk-up apartment in Sydney, you've probably noticed: they barely exist anymore. New developments tend to be either detached houses on the fringe or large apartment towers near transport hubs. The housing types in between — the ones that used to define inner-ring suburbs — have all but stopped being built.

This isn't an accident. It's a structural problem baked into how we regulate, finance, and build housing in NSW. And it's making affordability worse for everyone.

What Is the Missing Middle?

The term “missing middle” was coined by architect Daniel Parolek of Opticos Design to describe a range of housing types between detached single-family homes and mid-to-high-rise apartment buildings. Think duplexes, triplexes, townhouses, row houses, manor houses, and small walk-up apartment blocks of 3–12 units.

These building types were once the backbone of Australian suburbs. The three-storey walk-up that lines streets in Randwick, Bondi, and Manly. The semi-detached pairs in Marrickville. The small blocks of six flats in Kogarah.

They're called “missing” because, despite being the housing types most people say they want, they've become extraordinarily difficult to build at a price that makes financial sense. The result is a polarised housing market: you get a house in the outer suburbs, or you get an apartment in a tower. Not much in between.

The Economics Squeeze

The fundamental problem is that medium-density housing sits in a financial dead zone. Detached houses are relatively simple to build and finance. Large apartment towers achieve economies of scale that spread fixed costs across hundreds of units. But a 12-unit walk-up bears nearly the same regulatory and compliance burden as a 60-unit tower, spread across far fewer dwellings.

Fixed Costs That Don't Scale Down

Every multi-unit development in NSW faces a set of fixed costs that are largely the same regardless of whether you're building 8 units or 80:

• Development application fees. DA fees in NSW are calculated based on estimated development cost, set out in the Schedule of Planning and Development Fees and Charges. But the professional costs around a DA — architect fees, planning consultant reports, traffic studies, shadow diagrams, heritage assessments — can easily total $50,000–$100,000 regardless of project scale.
• Section 7.11 infrastructure contributions. Local councils charge developer contributions for roads, parks, and community infrastructure. Under NSW law, these are capped at $20,000 per dwelling in established areas before requiring IPART review, and $30,000 per dwelling in greenfield areas. For a 10-unit development, that's $200,000–$300,000 before you've poured a single slab.
• Defect bond and insurance. The Home Building Act 1989 requires a 6-year warranty period for major defects (structural, waterproofing, fire safety) and a 2-year warranty for all other defects. Builders must carry home building compensation fund coverage, and developers increasingly face bond requirements. These costs don't shrink for smaller projects.
• Strata plan registration. Setting up a strata scheme involves surveyor fees, legal costs for by-laws, and registration with NSW Land Registry Services. The cost is broadly similar whether you're registering a 6-lot or 60-lot scheme.

In a 60-unit tower, these fixed costs might add $5,000–$8,000 per dwelling. In a 10-unit walk-up, the same costs add $20,000–$40,000 per dwelling. That difference goes straight into the sale price.

Construction Costs Per Unit

Medium-density housing also sits in an awkward spot on the construction cost curve. According to BMT's 2026 construction cost guide, building costs in Sydney range from approximately $1,750/m² for a medium-standard townhouse to $4,500/m² or more for high-specification apartments. Walk-up apartments typically fall in the $2,400–$3,800/m² range.

Detached houses benefit from simpler construction: timber frame, slab-on-ground, no common areas. Large towers benefit from repetition — the 40th floor is cheaper per unit than the 4th because the design, formwork, and procurement are already done. Medium-density projects get neither advantage.

And then there's parking. Basement car parking — which most councils still require — costs between $60,000 and $120,000 per space in major Australian cities. For a 12-unit project required to provide one space per unit, that's $720,000–$1.44 million in parking alone — costs that are fully passed through to buyers.

The Regulatory Burden

NSW tried to address the missing middle with the Low Rise Housing Diversity Code, formally adopted in 2018 and fully applied across NSW from 1 July 2020. The Code was designed to fast-track approvals for duplexes, manor houses, and terraces in R2 Low Density Residential zones.

It hasn't worked. A 2022 study published in Australian Planner found that the Code “not only failed to deliver the housing diversity it was intended to promote but initiated actions by local government authorities that further curtailed housing supply and diversity beyond the Code's scope.” Councils opposed to the Code used local planning controls to effectively block its application, particularly for manor houses.

Beyond the Code, medium-density developers face a regulatory stack that adds cost at every layer:

• BASIX compliance. NSW's sustainability requirements add approximately $6,400 per townhouse in upfront construction costs, according to ACIL Allen's cost-benefit analysis prepared for the NSW Department of Planning. The 2023 updates raised energy performance targets further.
• Design review panels. Many councils require medium-density projects to go through design excellence processes originally intended for towers, adding months of delay and tens of thousands in consultant fees.
• Car parking minimums. Most NSW councils still mandate minimum parking ratios for residential development, even near train stations. Each basement space adds $60,000–$120,000 to the project cost and often determines whether a site is financially viable at all.
• National Construction Code (NCC) 2025. The latest NCC updates add an estimated $5,000–$15,000 per dwelling in higher energy performance requirements compared to pre-2024 standards.

None of these regulations are unreasonable in isolation. Sustainability standards, accessibility requirements, and building quality controls all serve legitimate purposes. The problem is that they're designed for a world of large-scale development. When applied to a 10-unit walk-up, the cumulative cost makes the project unviable.

What the NSW Strata Data Shows

At StrataChecks, we track over 88,000 strata plans registered in NSW. The data tells a clear story about what's happening to medium-density housing.

The majority of NSW strata plans are small schemes — buildings with fewer than 20 lots. These are the duplexes, townhouse rows, and walk-up blocks built in the 1960s through 1990s that still house a significant share of Sydney's apartment dwellers.

But when you look at recently registered strata plans, the picture shifts dramatically. New registrations skew heavily toward larger schemes — 50, 100, 200+ lots. The 12-unit walk-up, which was once the default apartment building in suburban Sydney, has been largely squeezed out of the development pipeline.

This isn't because there's no demand for these building types. It's because the economics don't work. When fixed costs per dwelling are 3–5x higher in a small project, only large-scale development pencils out.

Who Pays the Price

The collapse of the missing middle hurts specific groups hardest:

• First-home buyers who want something bigger than a studio apartment but can't afford a detached house. A three-bedroom townhouse in an established suburb would be ideal — but almost none are being built.
• Downsizers who want to stay in their neighbourhood but don't need a four-bedroom house. The low-rise apartment or villa that would suit them doesn't exist in the local market.
• Renters, who face constrained supply. More diverse housing stock would mean more rental options at different price points. Instead, the rental market is increasingly split between aging walk-ups (built decades ago) and expensive new towers.
• Established neighbourhoods that face a binary choice: no change at all, or a 20-storey tower. Medium-density infill — the kind that adds homes without radically altering neighbourhood character — rarely gets proposed because it doesn't make financial sense.

What Would Fix It

There's no single fix, but several policy levers could make medium-density housing viable again:

• Streamlined approvals for small projects. A 6-unit townhouse development shouldn't require the same assessment process as a 200-unit tower. Complying development pathways (like an improved Housing Diversity Code) that genuinely work would cut months of holding costs and consultant fees.
• Scaled infrastructure contributions. The current s7.11 system charges per dwelling regardless of project scale, but the administrative overhead falls disproportionately on small projects. Tiered contribution rates or exemptions for projects under a certain size could help.
• Parking reform. Removing or reducing minimum parking requirements — especially near public transport — would eliminate one of the biggest cost barriers to medium-density development. At $60,000–$120,000 per space, parking minimums can add 15–20% to total project costs.
• Pattern-book designs. Pre-approved building designs that can be deployed on compliant sites without a full DA process. This is already used in parts of the UK and has been proposed by NSW Planning as part of the Low and Mid-Rise Housing Policy.
• Zoning reform. New Zealand's Medium Density Residential Standards (MDRS), introduced in 2022, allowed up to three dwellings of up to three storeys on most residential sites as of right — no resource consent required. While the results have been mixed in practice, the principle — enabling medium-density as a default rather than an exception — is the right direction.

The Bottom Line

The missing middle isn't missing because nobody wants it. It's missing because we've built a system where it costs almost as much to deliver 10 units as it does to deliver 60. Until fixed costs scale with project size, until parking mandates reflect actual transport patterns, and until approval pathways treat small projects differently from large ones, the gap will keep widening.

For apartment buyers, this means understanding the building you're buying into matters more than ever. Older walk-ups and small blocks have different financial dynamics, different maintenance needs, and different governance challenges than large towers.

If you're considering a strata property in NSW — whether it's a 6-lot walk-up or a 200-lot tower — StrataChecks can help you understand the building's financial health, dispute history, and risk profile before you commit.