In a bid to increase medium-density homes, and reduce the current flood of apartments, medium-density design and building standards of the code will be assessed as complying development, that is, they will be approved faster than traditional development applications. Approvals will be made in 22 days as opposed to 71 days.
One of the standards will be a two-storey height limit, which will ensure properties "easily fit into established streetscapes", the government said.
"Sydney needs more choice in housing types than we are currently building and this policy will help to deliver better quality medium-density homes," Minister of Planning Rob Stokes said.
"This type of housing has the added benefit of generally being more affordable too because it requires less land area."
While a third of homeowners preferred downsizing to medium-density homes from freestanding houses, only 10 per cent of housing approvals in Sydney in 2015/16 were for medium-density homes, the government said.
There is a potential for almost 280,000 medium-density dwellings in Sydney based on council zoning and planning controls.
The Urban Development Institute of Australia NSW welcomed the news, particularly after Mr Stokes said there was a "missing middle" in the NSW's housing repertoire at the UDIA conference in September.
The code will change the way Australians view what makes "the Australian dream" and steer homeowners towards more affordable options, UDIA agreed with Mr Stokes.
The Housing Industry Association agreed fast-tracking medium-density development would provide NSW homeowners more choices.
"The pressure on land prices and housing supply in Sydney means a new generation of homebuyers could have a much larger choice of housing types in the future, if this code and the changes to the approval process can be supported by councils, industry and the community," HIA executive director NSW David Bare said.
"The design guide will promote better quality medium-density housing to be built, in the same way that the apartment design code released many years ago now has improved the design of high-rise apartments."
Detached houses and apartments have hit a peak. On Wednesday, HIA also said all three large east coast states have hit record high detached house commencements.
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