Building in outer suburbs costs taxpayers tens of thousands of dollars more for every home built while forcing residents into longer commutes and lower living standards.

A NSW Productivity Commission report into the infrastructure-related costs of house-building found increasing density in Sydney’s inner city suburbs was far cheaper because essential services were already in place.

It suggested the cost of development was up to $75,000 more in infrastructure charges for each home built in parts of northwest Sydney when compared to building in the inner west or city centre.

NSW Productivity Commissioner Peter Achterstraat on Monday said at least 900,000 additional homes were needed in NSW by 2041, including 550,000 across Sydney.

“Building up in existing areas is cheaper because much of the necessary infrastructure, such as roads, public transport, schools, utilities, and open space, is already in place,” he said.

“If we build homes where people want to live, near jobs and amenities, the productivity and lifestyle benefits will be enormous.

“It’s also fairer – key workers like nurses and teachers should be able to afford to live near the hospitals and schools where they work.”

Mr Achterstraat said Sydney’s eastern suburbs, north shore, inner city and inner west had the greatest unmet demand.

“These areas also have the most existing capacity and are the most cost-effective areas to build in,” he said.

“Put simply, more housing in the right places, where people want to live, will improve affordability, reduce infrastructure costs, and limit the burden on taxpayers.”

Less than 20 per cent of new dwellings were built within 10km of the city centre between 2016 and 2021, the commission found.

Planning Minister Paul Scully said the focus for new developments should be on inner city suburbs with existing infrastructure.

“More infill development means people can stay in their communities and neighbourhoods through different stages of their life,” he said.

“Everyone wants family and friends to be able to afford to live nearby.”

The commission compared the associated infrastructure costs of roads, congestion, public transport, schools, health services, water and wastewater services for building homes in established suburbs and the sprawling northwest.

It recommended raising average building heights for apartment complexes near the city centre, allowing more development around transport hub and encouraging medium-density projects such as townhouses.

– AAP