RichmondPRA, a large non-profit group which supports people who are socially disadvantaged, lodged a development application to build 41 affordable units in Guildford in 2014.

It took almost a year for Holroyd City Council to approve the development, to house low to moderate income earners, which RichmondPRA estimates cost the organisation $100,000 in lost time.

After the development was approved, RichmondPRA was asked to pay a further $379,000 contribution towards local infrastructure and amenities to serve the new residents.

RichmondPRA chief executive officer Pam Rutledge appealed to the council to waive the fee but said the request was voted down on the grounds that the unit block was regarded as a commercial development.

"Unfortunately, some of the councillors portrayed us as wealthy developers with lots of money in the bank who could well afford to do this," she said. "It is disappointing that they did not seem to have a good understanding of the not-for-profit sector."

Ms Rutledge said such fees, charged under Section 94 of the Environmental Planning and Assessment Act, could as a deterrent to affordable housing developers.

"I totally understand the council needs to meet obligations to its ratepayers but the DA process and the Section 94 ended up being almost half a million dollars that we can't use for other things," she said.

"We can find a way to pay, fortunately, because we are a larger organisation but it's coming out of resources which would otherwise to go to providing services for people who desperately need them."

RichmondPRA is investing $8 million of its own funds on the development which will help alleviate the chronic shortage of affordable homes, with pent up demand in NSW for about 100,000 new low cost properties.

The charity intends to employ people who are social disadvantaged to provide cleaning and grounds maintenance once the development is complete in 2017.

NSW Federation of Housing Associations chief executive officer Wendy Hayhurst said the community housing sector is lobbying for councils to reduce or waive contribution fees for not-for-profit developers,

"Those fees are an additional cost on top of everything else which makes it harder to make the rent affordable," she said. "You're really robbing Peter to pay Paul.

"Local councils are not exactly awash with money. They want to maximise what they get from developers but we're arguing that an exemption really ought to be made for social and affordable housing."

Shelter NSW executive officer Mary Perkins said many councils could not afford to cover infrastructure for extra residents without the developer's contribution fee.

"We want affordable housing in areas with good infrastructure," she said. "The housing provider is bringing in new people who will need services and those services need to be paid for."

A spokeswoman for Holroyd City Council said it was lobbying the State government to provide assistance for not-for-profit developers to help cover infrastructure costs.

"Council was not in a position to waive RichmondPRA's contribution as the local infrastructure is required for the residents of the affordable housing development and Council could not put that burden onto ratepayers," she said.