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Victoria’s new ‘granny flat’ reforms to boost housing supply

New secondary dwelling reforms introduced by the Victorian Government will likely boost housing supply by about 0.5 per cent according to new research.

The Victorian Government recently announced the removal of obstacles to building secondary dwellings, also referred to as granny flats.

Under the changes that will begin next month, families will no longer require a planning permit to build a small second home on their property.

As part of the Labor Government’s recent Housing Statement, small second homes under 60sq m, also known as granny flats, will no longer require a planning permit on properties 300sq m or larger where there are no flooding or environmental overlays.

There will be no restrictions on how a small second home can be used, meaning they can be used to keep family members closer, provide temporary housing or be rented out for additional income.

Research from the e61 Institute found that the changes will likely see an increase in overall supply, based on what occurred in Sydney when similar measures were introduced.

Research Economist at e61 Institute Matthew Maltman said the historical impact of the 2009 NSW reforms on the Sydney market indicates that the secondary dwelling reform introduced in Victoria may boost Melbourne’s housing supply by about 0.5 per cent.

“Our analysis found that secondary dwelling approvals surged in Sydney in the decade following the implementation of similar reforms in 2009,” Mr Maltman said.

“From 2006 to 2021, secondary dwellings almost tripled as a share of detached housing, from 0.3 per cent to 0.9 per cent. 

This contributed 1.5 per cent of Sydney’s total housing growth, and was 6.1 per cent of Sydney’s growth in detached housing.”

Mr Maltman said these types of reforms are an easy way for governments to increase housing supply.

“It’s also important to note that secondary dwellings that are rented out tend to be relatively low in the rent distribution, so additional supply may assist low-income occupants more than other market-provided housing supply,” he said.

“These outcomes do not present complete solutions to Australia’s housing availability but represent easy gains given the simplicity and low cost of the reforms.

In Sydney, much of the secondary dwelling growth was in the Western Suburbs, including in Fairfield, Bankstown and Merrylands, where larger block sizes, relative to inner suburbs, facilitate building.

According to the research, the Melbourne areas most likely to experience growth in secondary dwellings are locations north of the city and in the outer suburbs, such as Tullamarine, Wyndham, and Casey. 

Mr Maltman said these areas have larger than average household size and low floor size tomblock size ratios. 

Some areas closer to the city, such as Essendon and Brunswick, may also see take up as they have a favourable level of existing density and sufficient space on some blocks.

Under the new reforms, small second homes will still require a building permit, will need to meet ResCode (residential design code) setback and siting requirements – and cannot be subdivided or separately sold off from the main home.

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.