Granny flats for Victoria



Rental crisis


Granny flats for Victoria are a potential solution and could become part of a suite of options to address the rental shortage in Victoria. The vacancy rates are below 1 per cent for many parts of central Victoria and property managers in many parts of the state are reporting more than 30 applicants for most properties.


The private rental market is increasing in importance as more households are renting, and for longer periods. The proportion of Australian households renting has increased, from 22% (1.5 million households) in 2006 to 27% (2.1 million households) in 2016 (ABS 2019).


Victoria is the only state that does not allow granny flats as an income stream for homeowners. Indeed, Victoria has the most stringent laws in Australia for building a secondary dwelling. However, Plan Melbourne is beginning to address the housing shortage and granny flats are on the table.



Income stream


In Victoria, there are restrictions on who lives in granny flats, commonly called Dependent Person Units (DPU). The DPU must be demountable and in some council areas, granny flats can only be occupied by a person who is dependent on the resident of the main dwelling – normally a family member. Moreover, once the occupant leaves the granny flat the DPU must be removed.


Each council is responsible for enforcing these rules through the implementation of provisions of the Planning and Environment Act. Most councils do not allow granny flats to be rented out privately. However, things are changing for the better.



Smart Planning has presented a code that permits small-scale accommodation including granny-flats and garden studios. These dwellings will be able to be constructed on the same land which already houses another dwelling, located within a residential area. Important elements of the code which directs the placement and the overall design of the secondary dwelling include:


  • maximum height of 5 meters;


  • maximum floor area not exceeding 60 sq. meters;


  • adherence to minimum garden size requirements established within the zone;


  • boundary and property clearances and


  • prohibition of sub-divisions.



The process of verification and assessment of the application for secondary dwellings would be conducted by VicSmart. The Secondary Dwelling Code outlines in more detail the new Victorian path forward for granny flats as income-producing investments




An investment that doesn’t cost the earth


Buying real estate as an income stream is expensive. The rental return on the houses and units in Victoria is often low compared to the purchase price. Whilst high-income earners benefit from negative gearing laws this is of little benefit to smaller investors. Granny flats on the other hand are generally within the reach of many homeowners and offer a positively geared investment.


Granny flats are hugely popular throughout Australia and provide a myriad of accommodation alternatives. Many older investors that want to stay in their suburbs and be amongst family and friends either choose to lease out their large home or live in the granny flat. Others build granny flats for teenagers or for an Air BnB. Either way, granny flats have many uses and very few purchasers complain about the extra space.


Victoria is set to embrace granny flats as the other states have and the opportunities for both homeowners and those that require rental accommodation will be much improved.