In October last year, the department forecast NSW is unprepared for an additional 250,000 public school students by 2036, an increase of more than one-third.

A copy of the department's asset strategy, obtained by Fairfax Media, shows they will need the equivalent of more than 220 new primary and secondary public schools. Merely keeping pace with this rate of growth will require government investment of more than $11.1 billion, the department predicts. If funding stays at present levels, the department forecasts it will receive just $4.2 billion, leaving a deficit of almost $7 billion. About 70 per cent of the new schools required over the next decade will be within greater Sydney.

A senior bureaucrat at the department, who spoke on condition of anonymity because they were not authorised to brief the media, said the department had failed to anticipate a rise in high-density housing in areas such as Auburn and Ryde.

"We have got a major shortfall," the source said. "When they got down exactly how many schools we needed, that came as a shock. The department has not had a good handle on its asset strategy for many years." The department has focused much of its capital expenditure in recent years on north Sydney, where it is facing a more pressing shortage. An unanticipated increase in the number of parents enrolling their children in the public system is putting pressure on small schools already at capacity. A number of primary schools on the north shore are bursting at the seams, with a handful – Harbord, Mona Vale, Willoughby and Curl Curl North – approaching or breaking through the 1000 student barrier in recent years.

The small primary schools in the inner city are also struggling to keep up with enrolment booms, with Bourke Street Public School expanding from just 74 students to 222 since 2010 and Darlinghurst rising from 194 to 278. In Sydney's eastern suburbs, primary schools at Vaucluse and Maroubra Bay have doubled in size since 2010. "Someone should have foreseen that a significant immigration population was arriving and they should have been provided for," said planning expert Bill Randolph, the head of the City Futures Centre at the University of NSW. "Budgets have been set that are so deficient, somebody either did not take notice or has determined they're not being pushed into spending more." Tim Williams, chief executive for the Committee for Sydney, says it is "absolutely fundamental" that schools are integrated into major developments and school planning should be "above electoral cycles". "We've got an approach to school planning which waits until the demand is excessive and then asks what to do," he said. A spokesman for Education Minister Adrian Piccoli said the government inherited an infrastructure backlog in public schools and had committed more than $3 billion in infrastructure and maintenance since the election.

"The government will fulfil all its obligations under the Education Act to ensure that every child in NSW receives an education of the highest quality," he said. "In just over three years, 18 new or relocated public schools have been funded and 44 major upgrade projects have been announced. The government has announced projects which will deliver over 10,084 net additional public school places." Labor education spokesman Ryan Park said inadequate investment in education would lead to overcrowded schools and bigger class sizes. "Larger class sizes will mean less one-on-one attention in the classroom and poorer educational outcomes for our kids," he said. The Education Department is understood to be struggling with the high price of land in established areas and will need $6.5 billion for purchasing new sites alone. The key growth areas identified for the next two decades include Parramatta and Chatswood regions and new land releases in Sydney's south-west and north-west.

Outside of Sydney, the department is facing further unexpected growth in the lower Hunter Valley city of Maitland. The report finds that the department is well behind on its plans for managing its stock of heritage buildings, which date back as far as 1852. The department has drawn up plans for managing only 124 of its heritage buildings from a total of 1400.