Sydney's housing crisis cannot be addressed without reform to how water infrastructure is funded and delivered, with calls growing for greater private investment to complement Sydney Water's efforts.

A discussion paper released by the Urban Development Institute of Australia (UDIA) NSW, titled Water and Housing: Tapping private investment to enhance public water infrastructure, identified 24,200 homes across the south-west of Sydney are currently being prevented be from delivery due to a lack of water infrastructure.

With over 120,000 new lots to be created across the south-west this number of constrained lots will only increase without system reform.

UDIA NSW says that under the current regulatory model, Sydney Water operates within an IPART-approved pricing cap, which limits the scale of investment it can make to expand water and wastewater networks.

With the NSW Government targeting 377,000 new homes by 2029 under the Housing Accord, existing funding and regulatory settings are unlikely to meet the infrastructure demand needed to connect these developments.

“Water infrastructure delays mean delays to delivering housing,” said UDIA NSW CEO, Stuart Ayres. “With public funds maxed out, we will need private capital invested into water infrastructure if we want to see more new homes built.”

The solution lies in greater cooperation and upfront planning between Sydney Water and private providers, enabling new models of investment and delivery while maintaining Sydney Water's public ownership.

“Sydney Water makes a profit for the Government, so we know water infrastructure is an attractive investment for private capital even with prices remaining regulated by government,” he added.

“Water Infrastructure Partnerships are an innovative way to deliver the infrastructure we urgently need for new housing while keeping Sydney Water in public hands.”

The key findings from the report are:

• Public financing of water infrastructure has reached its effective peak
• Demand for water infrastructure is surging due to new housing growth and data centres
• Sydney Water cannot deliver water infrastructure growth demands on its own
• Sydney Water's capacity to deliver new water infrastructure is artificially capped to keep water prices lower
• Delaying water infrastructure results in a delay in new housing

Based on these findings, UDIA recommends:

• Establish 'Water Infrastructure Partnerships' to facilitate private investment in public water infrastructure
• Permit local water networks to be established with private capital for out-of-sequence housing developments

These actions will ensure:

• No changes to NSW Constitution Act 1902 relating to Sydney Water or Hunter Water
• Government, through Sydney Water, continues to regulate the price of water

“We know a lack of water infrastructure is one of the biggest constraints stopping new housing. Without system reform to support private capital, we risk falling further behind our housing targets,” Mr Ayres added.

“This type of reform would put Sydney's water infrastructure on the radar of global pension and superannuation funds, including a welcome opportunity for local funds to invest in Australia rather than offshore.”