Premier Chris Minns said his government was focused on bringing more supply into the housing market as the best solution to shortages that were hitting everyone from the homeless to renters and homebuyers.
"We know that we've got major housing pressures in NSW, perhaps in an unprecedented level," he told reporters on Wednesday.
While the housing crisis was previously characterised by people asking if they could ever afford to buy a property, Mr Minns said people were now questioning if they could afford to rent - a situation he described as "intolerable".
The premier was joined by Prime Minister Anthony Albanese to announce the first project funded through the state's $610 million share of the federal $2 billion Social Housing Accelerator.
The fund was set up in June as the Albanese government faced a stalemate with the Greens over the passage of Labor's $7 billion Housing Australia Future Fund.
Three homes at Riverwood, in southwest Sydney, will be turned into five one-bedroom and six two-bedroom social housing units for seniors by September next year.
The NSW funding is due to help the state add 1500 social homes, although the figure represents a fraction of the demand for public housing.
There were more than 55,000 people on the waiting list for social housing in June, although that figure was down from more than 60,000 in January.
Mr Albanese said it was unacceptable that there was less public housing in NSW now than when the former state coalition government took power more than a decade ago.
"We need to address this issue - it's not good enough to just sell off housing," he said.
The Victorian government on Tuesday announced it would broaden a little-known vacant property tax to cover properties left vacant for more than six months and empty land in Melbourne left undeveloped for more than five years.
The change was introduced to encourage property owners to rent out empty properties and developers to build housing rather than sit on vacant sites.
But Mr Minns said he was not looking at a similar scheme for NSW as measures had already been introduced to increase the supply of social and private-sector homes.
Housing approvals for NSW remain well below the figures needed to meet the state's contribution of about 75,000 extra homes per year towards national targets.
Approvals rose from 3361 dwellings in July to 3802 in August, according to the Australian Bureau of Statistics.
Urban Taskforce chief executive Tom Forrest said the total needed to double to about 7500 approvals per month if NSW was to meet its National Housing Accord goal.
"(The) ABS data shows that the NSW planning system remains a very long way from getting close to this," he said.
NSW has not come close to meeting its annual goal, which is due to start mid-next year, since 2018.
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