NSW Productivity Commission research found the state capital lost twice as many people aged from 30 to 40 as it gained between 2016 and 2021.

The driving factor for the exodus was unaffordable housing costs, highlighting the need for greater housing density across the city, the research found.

"Sydney is losing its 30- to 40-year-olds; if we don't act, we could become known as the city with no grandchildren," Productivity Commissioner Peter Achterstraat said.

"Many young families are leaving Sydney because they can't afford to buy a home, or they can only afford one in the outer suburbs with a long commute."

Building up inner-Sydney suburbs, not just adding homes on the city's fringes, would boost productivity and wages, cut consumers' carbon emissions and preserve land and green spaces, Mr Achterstraat said.

It would also help the city adapt to climate change, with some locations on the fringe of Sydney having almost a year's worth of days above 35C since 2007, compared to 66 days in the city centre.

Allowing higher buildings could have delivered 45,000 more homes in the past six years, potentially dropping rents by 5.5 per cent - or an average of $35 a week.

"Quality of life does not need to be sacrificed for more density," the commission said.

"Several cities with similar populations to Sydney, but higher densities - such as Vancouver, Munich, and Vienna - outrank Sydney on quality-of-life measures."

With data showing inner Sydney was less dense than inner Brisbane and Melbourne, Mr Achterstraat called for a fresh discussion on heritage restrictions on housing close to the city centre.

More than half of residential land in prime suburbs such as North Sydney, Newtown, Edgecliff and Redfern are covered by heritage conservation areas.

Loss of heritage has been cited as a key concern for local councils and other groups as the state government pushes to increase density around 39 transport hubs.

The Heritage Council of NSW last week recorded "considerable concern" about the impact on existing conservation areas "given their important contribution to local communities' heritage, character and sense of place".

The independent body called on the Minns government to hold off on rolling out the planning overhaul to allow councils time to strategically plan for the increased density.

Several councils have also pushed back against recent planning reforms.

The opposition said a one-size-fits-all approach was failing to look at a community's amenities and infrastructure.

"There is plenty of land across Sydney which can be developed on, which councils have already master planned, that has not been moved on," housing spokesman Scott Farlow told 2GB on Tuesday.

Premier Chris Minns said he was willing to negotiate and find better ways to boost density, but would not accept the status quo of saying that it was too hard.

"If we keep going down that path, then we won't have a city full of grandchildren," he said.

"We won't have the next generation of young Australians coming through."

Australian Associated Press