As astronomical house prices shatter the home ownership dreams of many Sydneysiders, government research has found the equivalent of 20 years of housing supply is tied up in empty bedrooms.

Over half a million homes, most of which are occupied by "empty nester" older couples or singles in their 50s or older, had at least two empty bedrooms, according to a study by the Department of Planning and Environment.

The research highlighted the potential benefit to the city's housing supply if some homeowners chose to live in smaller dwellings, allowing young families to fill the larger houses. But efforts to encourage this shift were thwarted by a lack of alternative options, Planning Minister Rob Stokes said.

"Our households are more diverse than ever, so logically our housing options need to match that," said Mr Stokes.