Designed to help level the playing field for tenants and assist with the costs of renting, a ban on secret rent bidding would spark legal rental auctions and further push up prices, an inquiry into the proposal heard late last week.
Similar concerns from the upper house cross bench this week led the government to accept it had to park the ban, to pass other rental changes through the parliament in late June.
"Being an Australian-first reform, we understand there are questions about how a ban on secret rent bidding will be implemented," Fair Trading Minister Anoulack Chanthivong said in a statement on Wednesday.
"We can't let that put a handbrake on areas where there is broad agreement.
"I want to thank the crossbench and renters advocates for their engagement on these reforms."
The NSW Tenants' Union, Homelessness NSW and the NSW Council of Social Service warned the proposal to ban secret rent bidding would make the situation worse by "encouraging a transparent, regulated rental auction process".
Independent MP Alex Greenwich welcomed the move to further consult amid fears about "rental-auctions"
Real Estate Institute of NSW chief executive Tim McKibbin warned the interference could produce "adverse outcomes" and potentially push more landlords to the short-term rental market, reducing stock for tenants.
Mr Chanthivong had argued sunlight was the best disinfectant but Greens housing spokeswoman Jenny Leong said no one had asked for the change.
The median Sydney rental property rose 13 per cent in the past year while the median unit surged by a record 19.1 per cent or $106 per week.
If passed, the NSW government's remaining legislation will still have an effect on rent bidding by banning third-party platforms and owners from soliciting bids.
Real estate agents are already banned from enticing tenants to make offers higher than the advertised price.
The legislation would also empower the new tenant advocate - the NSW Rental Commissioner - to gather pricing data from agents, allowing them to advocate for renters and provide quality advice to government.
Interviews for the commissioner position begin this week.
Legislation to ban no-fault evictions and make it easier for tenants to have pets will be introduced at a later date.
Currently, a landlord can evict a tenant without grounds with 30 days' notice at the end of their fixed-term lease, or with 90 days' notice during an ongoing lease.
Landlords can also refuse a tenant's request to have a pet without providing a reason.
Under Labor's election promise, a tenant's pet application would be approved automatically after 21 days unless a landlord responds in writing to the application.
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