Monitoring Sydney’s “Missing Middle”

At Quantify Strategic Insights, we specialise in analysing residential markets, development pipelines, and housing policy, helping governments, developers, and investors navigate the complexities of supply. One of the most pressing challenges is the delivery of Sydney’s “Missing Middle”, medium-density, family-friendly housing in established suburbs.

This segment of the market is critical to meeting the Federal Government’s Housing Accord target for “well-located” housing. Yet despite its importance, the Missing Middle remains under-represented and constrained by structural barriers.

Missing Middle housing is holding up better than the broader market . . .

Over 2015–2018 Sydney rode a high-rise apartment boom, with approvals dominated by multi-unit projects clustered in inner and middle-ring rail corridors. Approvals softened markedly from 2019 as credit tightened, costs rose and presales became harder. High density dwelling approvals in Sydney have averaged around 12,000 per annum over 2020–2025, less than half the 2017 peak of 29,300 dwellings.

Meanwhile, the decline in new house building approvals has been less pronounced, being around one third of their prior peak, while medium density approvals are down by around one quarter.

While medium density approvals have been most insulated from the downturn, medium density activity has conversely been least able to scale up to the extent seen for high density apartments and detached houses. As a result, activity in the “Missing Middle”, that is duplexes, terraces and small walk-ups, remains under-represented relative to need.

. . . but growth is being restricted by the lack of a pipeline of sites.

One of the reasons is lack of suitable sites. High density apartments can gravitate around Transit Oriented Development, while new detached houses have room in the greenfields. However, brownfield sites for medium density infill development are limited and the market relies heavily on house demolitions to provide a source of land supply for Sydney’s Missing Middle.

Developers typically purchase and demolish one or more homes to assemble land for multi-unit infill. When transaction volumes are healthy, sites become available and projects can proceed. But when sales slow, whether due to high interest rates, market uncertainty, or vendors holding on for price gains, the pipeline of developable sites shrinks. This reliance on existing housing stock means the level of infill activity can be cyclical, closely tied to the housing market’s ups and downs.

Over the nine years to 2025, Greater Sydney has averaged 5,300 house demolitions per annum, ranging from a high of 7,760 in FY2022, to a low of 4,037 in FY2020. This is lower than the Greater Melbourne average of 6,300 per annum over the same period.

Demolitions account for around one in ten house sales across Greater Sydney (also similar to Melbourne). The Middle Region has by far the highest level of demolition activity, accounting for just over three quarters of the Sydney total.

The State Government is incentivising development . . .

The NSW State Government introduced recent policies helping to promote development in the missing middle, including the Low-Rise Medium Density Code (enabling dual occupancies, terraces and manor houses via a faster complying pathway), Low- and Mid-Rise Housing reforms that open more sites near centres and frequent transport, and the introduction of the NSW Pattern Book where approved designs can be fast tracked. In the recent State Budget, there were also moves to ease fee timing and a state guarantee to help projects reach presales for funding.

. . . but more can be done.

While these may help to some extent, scaling up the Missing Middle will require a sharper policy focus on unlocking infill capacity in established areas.

This includes reforming planning schemes to allow higher yields on appropriate sites, accelerating precinct-level rezonings, encouraging holistic development on aggregated sites, and incentivising a shift from “one for one” knock-downs toward higher-density, family-friendly housing formats.

Measures could include:

• by-right Missing Middle typologies with clear envelopes (and genuine extra yield) on standard blocks within walkable catchments;

• incentivising a shift from “one for one” knock-downs toward higher-density, family-friendly housing formats. The ABS reports that 55% of demolitions in NSW were “one-for-one” knock-downs, resulting in no net increase in dwelling supply.

• reduction of friction – staging or deferring contributions, expand pattern-book approvals for terraces/duplexes with faster pathways, and simplifying utility connections to ensure any utility upgrades are proportionate to development;

• enable assembly – via measures such as gentle density bonuses for lot consolidation and simple strata-renewal rules.

Sydney’s housing challenge won’t be solved at the fringe or in the sky alone. A healthy pipeline of Missing Middle projects, underpinned by a steady flow of house sales and supported by the right policy settings, is essential for more diverse and resilient supply.

At Quantify Strategic Insights, we help governments shape effective housing strategies, support developers in identifying opportunities, and guide investors in understanding risk and demand across the housing spectrum. With deep expertise and market-leading data, we are uniquely positioned to help stakeholders unlock the potential of Sydney’s Missing Middle.

For more information, contact Angie Zigomanis at [email protected] or Rob Burgess at [email protected]