A booming Sydney will turn into an urban nightmare over the next 20 years if strategic plans are not made now, NSW Planning Minister Pru Goward said.
Figures published on Thursday by the Department of Planning and Environment say Sydney will need more than 600,000 extra homes for an additional 1.6 million people by 2031.
But it is the city's aging population and demand for smaller dwellings that is causing the most concern.
"If we don't plan for this crisis, and particularly plan for growth in one- and two-person households, we're going to end up with a city in a mess," Goward told Macquarie Radio.
"We have to take these population projections seriously."
According to the government, an additional 2 million people are expected to live in NSW by 2031, when the state's population will reach 9.2 million and Sydney's population reaches 5.9 million people.
Single households will be the fastest growing type, increasing by more than 40 percent across the state as the population gets older.
This type of accommodation will also become the most common group within the inner Sydney area.
However, in Sydney's west, families are expected to remain the most common household type.
Despite the population jump which is putting pressure on the City of Sydney childcare centers and high schools, families will still only comprise 13,600 of its 155,950 households by 2031.
While this is double the number recorded in 2011, lone households - comprising young professionals, student or older singles - will increase by 25,000 in the same period to more than 67,000.
At the same time, the city's population of 273,500 is projected to skew older, with the number of people aged 65 and above expected to almost triple.