Developers building in inner Sydney suburbs such as Potts Point, Darlinghurst and Erskineville will be forced to contribute to building affordable housing across the city, under a new proposal by the City of Sydney to tackle the lack of homes for low-income workers.

The proposal recommends expanding the council's current affordable housing policy, which operates only in pockets of the city, across the whole council area – a move which would boost the number of low-income homes by 40 per cent, but likely anger developers.

Under the policy, developers would be required to make a contribution – either a monetary payment to a community housing provider or an in-kind contribution of finished homes in their development for affordable homes – on new building projects across the city.

The levy would be phased in over four years and would create 600 affordable homes to be rented at below-market rates to low-income workers, according to the council's projections.