The NSW government says its upcoming state budget, to be delivered on Tuesday, will include funding to set up a partnership with a private manufacturer to supply pre-fabricated or modular housing.
The planned Modern Methods of Construction Innovation Facility will be aimed at producing high-quality housing faster to reduce construction times, lower costs and strengthen the building supply chain.
Premier Chris Minns said the housing crisis was one of the greatest challenges facing the state.
"We are pulling every lever to build more homes faster," he said on Sunday.
"The way we build homes has barely changed for generations - but the housing pressures facing NSW demand new thinking, new technology and new solutions."
Conventional houses can take more than a year to build from approval until completion, but modular housing allows for a faster turnaround due to the use of pre-made components.
Delivering medium-density homes from existing pattern-book designs - which allow for faster approvals - will be a key focus of the innovation hub.
The manufacturing centre could also be used to provide a range of public infrastructure, including schools and hospitals.
Treasurer Daniel Mookhey described the plan as "smart economic policy", adding the government was building a new industry while also supporting home-building.
"By anchoring this facility in NSW, we're driving productivity in our local construction industry rather than sending money, skills and workers interstate and overseas," he said.Â
When the Minns government came to power in 2023, NSW was forecast to build 36,000 homes a year in the following five years - far short of the levels needed to address chronic shortages, particularly in the nation's priciest housing market in Sydney.
It has since signed up to a federal target that would require it to deliver 377,000 extra homes in the five years to the end of 2029, a rate of about 75,000 homes annually.
The government has already overhauled state planning legislation, including measures that bypass councils for large-scale developments.
A two-stage competitive tender process for the modular housing project will open in the coming weeks, inviting local and international operators to partner with the government on the facility.
The latest figures from the Australian Bureau of Statistics show the number of dwellings approved nationwide were up 10 per cent in April compared to the same month a year earlier.
However, construction costs have risen significantly in recent months due to high fuel prices and supply chain issues triggered by the war in the Middle East.
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