The city council has put out a plan for preserving the rural areas which comprises more than half the city's geographical footprint, including Tongarra, Tullimbar and Yellow Rock, as well as Croom and Dunmore.

The draft Rural Lands Strategy would seek to cordon off traditional farming areas ahead of the NSW Government push for increased development to alleviate the state's housing crisis.

At Tuesday's council meeting, councillor John Davey said the council's housing plans identified demand for 10,600 new dwellings in the next 25 years - which could largely accommodated in the City Centre area without the need to rezone more rural land for residential development.

Cr Davey said rural lands had "scenic, social, economic, recreational and environmental benefits to the community".

The strategy would establish a "defendable rural boundary", a council report stated, as well as a transition area between rural and suburban land.

"Enforcing the boundary as shown in the draft strategy will assist council to manage urban growth and defend inappropriate and unsupportable land use change requests," the report stated.

Dairy farms in particular have been identified as a vital feature of the modern Shellhabour and surrounds, and the council would "protect identified important agricultural land and industries from other land uses, land use conflict and fragmentation".

Shellharbour Mayor Chris Homer said it was important to value the city's "stunning" natural assets to the west as well as the coastal east.

"The housing out West is basically one of the areas in Shellharbour and the Illawarra that's doing the lion's share [to help] the housing crisis," he said.

"But you just can't have that go berserk and go right up to the bottom of Macquarie Pass, which kind of starts affecting why people out west, and people that visit out west [value] that environmental backdrop.

"That balance, what would it be like if it was housing estates all the way to Macquarie Pass - would that be recognisably Shellharbour?"

The plan's goals had been supported by community members at consultation sessions held last June.

The continuation of the dairy industry, bushland and animal habitat, and "farms as proper farms with paddocks, pasture, animals and/or crops" were nominated by people as their top priorities to be retained or enhanced.

"In recent decades, urban expansion such as at Tullimbar, Calderwood and Dunmore, and major infrastructure projects, particularly the Albion Park Rail bypass, have resulted in a loss of parts of Shellharbour's rural lands," the draft strategy stated.

"This development also has the potential to cause land use conflict with remaining agricultural producers. Rural land will continue to be subject to competing land use interests.

"This makes ensuring the viability of the remaining rural lands and the local rural economy even more important."

Shellharbour has experience here - the 4800-dwelling Calderwood housing development was approved by the state's planning minister over the objections of Shellharbour and Wollongong councils, which argued it went against the established regional planning, among other reasons.

More recently Shellharbour has argued against aspects of Calderwood's continued expansion. In 2021 its deemed refusal of plans for another 455 residential lots at Calderwood Heights went to the Land and Environment Court where the parties agreed to its approval.

Councillors agreed to put the draft Rural Lands Strategy on public exhibition for 28 days, after which if no submissions are received that "require further consideration", it will be adopted by the council.