Developers have hit back at the state government's U-turn on its controversial planning reforms, claiming "a scare campaign pushed by a vocal minority" is driving the policy agenda.
Planning officials are understood to be drafting substantial changes to the proposed laws after the Coalition party room gave them the green light on Thursday. It means the bill's introduction to Parliament is likely to be delayed by several weeks.
The changes have been billed as the biggest reforms to planning laws in more than 30 years, aimed at streamlining the approvals process and ensuring a swift supply of new houses and jobs.
However, councils and some sections of the community claimed they were being stripped of the right to oppose unwanted planning proposals.
Planning Minister Brad Hazzard on Thursday confirmed a proposed approval path known as "code assessment" will only apply in high-growth areas, such as around the north-west and south-west train lines.
Councils wishing to use this process will be made to prepare "neighbourhood impact statements". A previous target that 80 per cent of development would pass through the code assessment or "compliant" channels has also been scrapped.
Under code assessment, if a development meets agreed requirements, such as building type, heights, setbacks and environmental standards, it must be approved by a council within 25 days, which raised concern residents would be prevented from providing feedback.
The proposed period for which developer infrastructure contributions can be held will be extended three to five years. Councils had complained that the three-year time frame was unrealistic for staged developments and that in regional areas even small subdivisions could take a decade to be completed.
Mr Hazzard said councils should still spend infrastructure money "as quickly as possible".
Appeal rights and heritage protection would remain, and the full variety of land zoning categories, which were to be reduced, would not be changed, he said.
The government carried out unprecedented public consultation on the changes and was never "locked in" to the draft reforms, he said.
But NSW chief executive of the Urban Development Institute of Australia Stephen Albin said the changes jeopardise the housing industry, the economy and job creation, claiming the decision was "short-sighted".
“It is disappointing that a scare campaign pushed by a vocal minority has resulted in the withdrawal of a world-class planning policy,” he said.
“We have a serious housing shortage in this state and are struggling to meet demand.
“The decision to delay the new planning act will only prevent investment that would result in job creation, particularly in Western Sydney."
But Greens MP David Shoebridge said the changes did not go far enough and the bill should be rejected entirely.
"The O'Farrell government has a clear mandate to return planning powers to the community. Despite this, the thrust of its planning reforms to date have been to empower developers, not communities," he said.