The New South Wales Government has moved to massively boost housing supply by announcing the first major land release in Greater Sydney in a decade.

Some 7,700 hectares of land south of Campbelltown will be released to allow for the construction of up to 35,000 new homes at Menangle Park, Mount Gilead and Wilton Junction.

The total amount of land being released is more than 40 times the size of Sydney's Centennial Park and dwarfs any land release the current State Government has previously made.

Planning Minister Rob Stokes said the release would also allow for new schools, public transport, road upgrades and green space.

But he said the character of the area - which is on Sydney's rural fringes - would not be lost.

"Through good planning, we will also ensure we maintain the rural lifestyle and heritage of the area," Mr Stokes said.

"We will create vibrant new communities with new homes close to jobs, transport, shops and recreational areas."

During the March state election campaign, Premier Mike Baird pledged to address the issue of housing supply in Sydney by doubling the target for new home sites on land previously owned by the government to 20,000 in the next four years.

Construction to start in Mount Gilead in two years

Mr Stokes said the land release would make good on that promise, with work expected to start on new homes in Mt Gilead in the next two years and construction in the other areas to follow later.

"These communities will help improve accessibility to the housing market by increasing supply in greater Sydney and putting downward pressure on prices," Mr Stokes said.

The Government's Plan for Growing Sydney document says an extra 664,000 new dwellings will be needed in metropolitan Sydney by 2031, to house a population that will have grown by more than 1.6 million people.

Most of that growth is expected in western Sydney, which is predicted to have an extra 900,000 residents.

In July Sydney's median house price topped $1 million for the first time, according to figures from real estate advertising group Domain.

The quarterly report showed the price of a middle-of-the-road Sydney house surged 22.9 per cent over the year to the end of June to $1,000,616 – the fastest annual pace of gain since at least the late 1980s.

The State Government's vision for the south-western Sydney land release is set out in the Preliminary Strategy and Action Plan for the Greater Macarthur Land Release Area, which is on exhibition until November 4.

NSW Opposition says plan needs to include jobs

NSW Opposition Leader Luke Foley said the Government's plan does not align with jobs creation in the area.

"It's a plan that delivers a population tsunami to south-western Sydney but without the matching jobs growth," he said.

"My concern is poor planning policy that is based on endless urban sprawl without the matching jobs growth to go with the population surge so what we will inevitably see is more and more people travelling 70 kilometres from the urban fringe to the Sydney CBD to work of a morning then home again at night.

"The Government's own policy today speaks of only 20,000 extra jobs. That's bad policy. We need to align population growth and jobs growth."

The Property Council of NSW said the release was crucial to help housing supply keep pace with demand.

"Unfortunately what has happened in the past is that we have had a choked pipeline with very little supply coming through on a rolling basis," executive director Glenn Byres said.

"We need to keep identifying these sites. We know that Sydney needs to build about 35,000 new homes a year to keep pace with population growth so having these release areas is crucial for building that sustainable pipeline of housing supply and starting to wrestle with the housing affordability challenge we've got."

But he said it was not a quick fix for the city's housing affordability issues.

"Not on its own," he said.

"It needs to be matched with a lot of density in inner city areas. It needs to be matched with development opportunities off the back of the big infrastructure spend the state is about to embark on as well as continued release across the north west, south west and Macarthur areas."