New reports have revealed that surging construction costs mean apartments are viable in wealthy inner suburbs but uneconomic in the outer west, where affordability pressure is most acute.

This means Sydney’s housing affordability crisis is being compounded by a perverse market dynamic: new apartments are far more likely to be built in prosperous inner suburbs where housing stress is relatively modest, while outer western suburbs, home to the city’s most stretched renters and buyers, are seeing approvals pile up and many will almost certainly never be built.

According to the Australian Financial Review, new research from consultancy Urbis, cited by the Property Council this week, reveals that three-quarters of the 115,000 apartments approved in Sydney since 2020 have never proceeded to construction.

That means roughly 86,000 dwellings exist on paper but not in the real world. The primary reason is a brutal cost squeeze that is not spread evenly across the city.

A Centre for International Economics report prepared for NSW Treasury lays out the geography of the problem in stark terms. In suburbs like Parramatta, Blacktown and The Hills, where housing demand is intense and incomes are lower, apartment approvals are high but construction is largely unviable. In short, it costs more to build the units than developers can recoup and profit from in sales.

In Woollahra, Randwick and the inner east, where residents are significantly wealthier and housing stress less severe, the economics work. On average across Sydney it costs $905,000 to build a mid-rise apartment that will sell for just $885,000, but that average masks a city divided against itself.

“The areas with the highest difference between sale price and costs are often not where development is occurring,” the CIE report found. Construction costs for mid-rise apartments have surged 36 per cent since 2018, while sale prices have risen just 18 per cent, a gap that has effectively shut down new supply in suburbs that can least afford the shortage.

The Property Council’s NSW executive director Anita Hugo said apartment starts remain “still well below mid-2010s levels” and that “years of cost escalation have increased commercial risk and slowed the commencement of approved projects.”

The findings throw an uncomfortable light on the broader picture of the Sydney market, which from some vantage points looks relatively healthy. Developer Mirvac on Wednesday reported a 38 per cent jump in residential sales, with chief executive Campbell Hanan declaring it “a normal, fair housing market.”

Mirvac’s strong results, however, are concentrated in precisely the kinds of inner-city and established-suburb projects where feasibility remains intact, a Fish Markets mixed-use precinct, offices above a CBD metro station, and build-to-rent developments in high-demand urban locations.

The NSW government’s own response to the feasibility data has reinforced the geographic paradox. The Minns government’s controversial decision to triple maximum density in Edgecliff and Woollahra, completing an unfinished train station on the eastern suburbs line to open up rezoned land, was driven in part by the CIE findings that inner-eastern suburbs have the strongest construction feasibility in Sydney.

The policy is defensible on economic grounds but has attracted fierce criticism for directing density to some of the city’s most affluent postcodes while outer suburbs languish.

NSW faces a target of 375,000 new homes by 2030 as its share of the federal government’s 1.2 million national housing accord. On current trajectories, that figure looks increasingly out of reach, not because approvals have dried up, but because the approvals that exist are concentrated in places where builders cannot make the numbers work.

The Property Council is urging the NSW government to use the upcoming budget to address the feasibility gap directly, calling for a moratorium on new developer taxes and fees during the Housing Accord period, including suspending Sydney Water development servicing charges and deferring infrastructure contributions until the occupation certificate stage.

Without intervention, the research suggests Sydney will keep building in Woollahra and watching approvals lapse in Blacktown, a market outcome that is rational for developers and devastating for the people waiting on affordable housing that may never arrive.

Initial reporting in the AFR and the Australian, culled from LeftField Communications daily feed.