The inner-city terrace, a style that became synonymous with Sydney's poor in the mid-19th century, will be spread through the outer suburbs, in a proposal released on Friday. Experts have praised the model but warned it could lead to uncomfortably close contact with neighbours.

Sydney needs more than 600,000 new dwellings in the next 15 years. The government believes meeting that target will require giving more attention to the middle ground between the high-density apartment block and the detached home.

"We must provide quality, sustainable and affordable housing," said planning minister Rob Stokes. "Terraces and villas are more energy efficient [... and] also offer more variety and flexibility."

A discussion paper prepared by SJB Planning and released by Mr Stokes on Friday would lay down a new standard for "medium-density" housing like terraces to encourage their construction across Sydney.

The draft plan would allow residents to squeeze into a maximum of 10 filigree terraces on blocks no smaller than 600 square metres.

"Terrace houses are very desirable now but that's a great irony because there was such a backlash against them," said Peter McNeil, the Associate Dean of the UTS Faculty of Architecture.

Certain styles of narrow terrace were banned soon after federation when garden suburbs became seen as far more desirable.

But despite becoming cool in the 1970s, they will still pose some challenges, Dr McNeil said. "People in this city have forgot how to live on close proximity to each other [...] hence the large number of [strata] disputes.

"Australians need to be re-educated about the realities of dense living and their surround sound digital systems and home cinemas are probably not compatible with this."

The government believes people can be persuaded to make the switch. A recent survey from the planning department found one-third of home-owners would consider downsizing to a terrace.

Mr Stokes earlier this month laid out a vision of a suburb of cheap and resilient Surry Hills-style terraces, in Sydney's newest suburb: Leppington, some 50 kilometres south-west of the CBD and future home to 30,000 new residents.

All medium-density homes would stand no taller than two storeys tall, under the discussion paper.

If the new standards become regulation, developers choosing to build according to the new design standards would be given significant advantages, including the expectation of being able to have their applications to build passed up to four times faster by councils.

Professor Rod Sims from Sydney University's school of architecture said it would also become easier for builders to secure bank loans for terraces if the regulations passed.

The government also wants more use of dual occupancies and the 'manor home' a style popular in Sydney's fast-growing south-west.

The manor combines between three and four homes in a two-storey building, like a low-scale apartment block with more privacy. Such homes would sit on lots of no less than 500 square metres, the government says.

The government will open the new standards to public comment.