Built for workers and once condemned as dark and dingy slums, Sydney's humble terraces may soon be back in fashion.

The New South Wales Government has said that building new terraces could be the answer to Sydney's affordability crisis.

NSW Planning Minister Rob Stokes has released the draft Medium Density Design Guide to try to encourage the construction of more housing of the terrace type.

Once seen as slums, terraces in Sydney's Glebe are now hot property. ( ABC News: Ursula Malone )

He said when terraces were built in Sydney's inner-city suburbs in the 19th century to house a population boom, they were thought of as slums because they not properly built and serviced.

"It was effectively banned in Sydney between 1920 and [the] 1960s," Mr Stokes said.

"We know today though, that those very areas that were stigmatised in the late 19th century are some of the most desirable parts of our city and we've opened up a 50-year gap in supply in one of the most desirable forms of accommodation that we have in Sydney."

He said that while a house on a quarter-acre block had become the ideal, with ever-rising house prices in Sydney, that dream had become unaffordable for most and house buyers needed more options.

'We need to make efficient use of land'

Mr Stokes said the Government had identified a gap in the market.

"What we know is that we're getting a lot of apartments and high-rise units across Sydney, we're also getting detached housing on the fringes of Sydney," he said.

"What we are missing out on though is that human scale of development that typifies so many cities overseas and that really is all about terraces.

Rob Stokes says the Government wants to provide home buyers with options. ( ABC News )

"We need more housing right across Sydney.

"We're a sprawling city, we cover 12,000 square kilometres with just 5 million people, which is a very low density model.

"We've got to make efficient use of land, because we know our population is increasing very dramatically, about 100,000 people are coming into NSW every year.

"So we've got to find another 725,000 new homes in Sydney over the next 20 years."

Guide will remove need for development applications

If approved, the guide will mean that developers will not need to get development application approval.

"What we are talking about is making it faster and cheaper and easier to provide terrace housing in areas that are already zone for medium density development."

But this has raised concerns for council peak organisation Local Government NSW.

A spokeswoman said the proposed guide would remove communities' abilities to have a say in the decision-making process, which was what the development application process was all about.

"This proposal would remove those rights, and remove the opportunity for residents and ratepayers to have a say on a development next door," the spokeswoman said.

'Terraces important part of past and future'

But Mr Stokes said with the state's population expected to rise to almost 10 million people within the next two decades, more housing options were essential.

"Terrace houses that have been such as important part of Sydney's past and we believe can be an important part of Sydney's future as well," he said.

He said he hoped building new terraces and townhouses would make downsizing more attractive.

Developments like Fairwater in Blacktown are already taking on the medium density message.

The NSW Government has called for more medium density housing. ( ABC News: Ursula Malone )

Nigel Edgar, general manager at Frasers Property said it gave people an opportunity to have a backyard, albeit in a smaller home.

Developer Nigel Edgar says there is a growing demand for terraces. ( ABC News )

"If you were to buy a new house you would be spending a million dollars, whereas we're introducing terrace housing from $600,000," Mr Edgar.

"It's a great housing choice for downsizers and also young emerging families.

"We're seeing more and more nowadays people are looking for smaller houses, they're looking for more flexibility with their lifestyles, everyone has very busy lives these days."

The Australian Institute of Architects NSW president Shaun Carter said the institute welcomed the draft design guide.

"While it enables proponents to benefit from the fast-track advantages of complying development, it also sets a minimum standard of design quality that applies across the whole state," Mr Carter said.

"The guideline will help to raise the community's expectations of these types of housing developments."