Granny flats, also known as secondary dwellings or backyard studios, are taking off across Victoria. These small second homes contribute to boosting the housing supply by making it easier for families to build additional living spaces in residential and rural areas.
With house prices through the roof and the cost of living increasing, these compact homes are the affordable solution for multi-generational living and help with the state’s housing shortage.
Victorian Government’s Game Changing Granny Flat Reforms
In December 2023, the Victorian Government announced changes that could shift the granny flat landscape.
You no longer need a planning permit to build a granny flat under 60 square metres on a block over 300 square metres, simplifying the approval process in line with the new building regulations. Under these new regulations, a granny flat is also known as an accessory dwelling unit.
Premier Jacinta Allan said, “We know for many Victorians the burden of planning approvals has put building a small second home in the too hard basket – we’re making it easier, so families can grow together and have a place to care for loved ones.”
This means over 700,000 homes across Victoria are now eligible to have a granny flat on their block. The Victoria planning provisions also play a crucial role in these changes, impacting the construction of granny flats and ensuring compliance with the updated laws.
Why You Should Build a Granny Flat
There are many benefits to building a granny flat on your block, such as:
- Keeping family members close while still being independent.
- Increasing property value and rental income.
- Building a granny flat on the same lot as an existing dwelling can increase property value and rental income.
- Creating a flexible space for guests, hobbies or a home office.
- Increasing housing density in Victoria.
- Granny flat prices can range from $100,000 to $150,000 or more, making it a cost-effective solution for homeowners.
The New Granny Flat Regulations
As of December 2023:
- Granny flats, also known as accessory dwelling units, are under 60 square metres and do not require a planning permit.
- Secondary dwellings must be on a block over 300 square metres.
- Building permits are still required to comply with residential design codes.
- Granny flats cannot be subdivided or sold separately from the main property.
- There are no restrictions on who can live in the granny flat.
- Dependent person’s units, which are movable buildings for accommodating a dependent person, must comply with specific regulations.
Be sure to comply with the relevant planning scheme and seek information from the municipal council about the required criteria and permits.
| Granny Flat Size | Planning Permit Required? |
| Under 60m2 | No |
| Over 60m2 | Yes |
How Much Does a Granny Flat Cost?
Building a granny flat is a big investment, and costs range from $80,000 to $160,000, depending on size, design, and specifications. High-end custom builds can cost over $200,000. When planning your granny flat project, remember to do the following:
- Engage a professional builder or architect to ensure compliance
- Factor in additional costs such as site prep, utilities and landscaping
- Think about what you will be using the granny flat for and design accordingly
- Look into financing options such as using home equity or a construction loan
- Check with your local council for specific cost-related regulations and requirements
Additionally, building a dependent person’s unit may also incur additional costs and require compliance with specific regulations. When budgeting for a project, don’t forget to factor in the costs of connecting utilities and infrastructure. Talk to the construction cost experts at Duo QS to get an estimate.
Our cost analysis and estimating services will give you a clear picture of the expenses and cash flow requirements for a secondary dwelling. With building material and labour costs going up across Australia, expert advice is gold in keeping the project on budget.
Tax Implications
The tax implications of a granny flat depend on how you will be using it. If you plan to rent it out, you must declare the income and may be eligible for tax deductions like depreciation. Capital gains tax (CGT) exemptions apply to certain granny flat arrangements entered into on 1 July 2021.
Granny Flats for Seniors
The Victorian government has introduced grants and initiatives to support the building of small dwellings for seniors, promote intergenerational living, and reduce the demand for senior housing.
Compact living spaces and granny flats are becoming popular for seniors in Victoria looking for affordable and accessible living solutions.
Another option is to build a dependent person’s unit (DPU) on the same lot as a small second dwelling in accordance with the relevant planning scheme and municipal council requirements. A dependent person’s unit is a movable building used to provide accommodation for a person dependent on a resident of the existing dwelling.
When choosing a small-scale housing for seniors, prioritise accessibility, safety features, proximity to family, and low-maintenance design. Government resources are available to help find housing grants and discounts for seniors in Victoria.
Key Takeaways
- New granny flat rules in Victoria make it easier to build a secondary dwelling.
- Granny flats are affordable housing and increase property value.
- No planning permit is required for granny flats under 60m2.
- Building permits and design codes are still required.
- Costs range from $80,000 to $200,000+.
- Tax implications depend on use of the granny flat.
- Small-scale housing and granny flats are for seniors in Victoria.
- Regulations related to existing dwellings include the absence of the requirement for a car parking space.
Frequently Asked Questions
Can I rent out my granny flat in Victoria?
Yes, you can rent out your granny flat in Victoria. However, you will need to declare the rental income, and you may be eligible for tax deductions.
Do I need council approval to build a granny flat?
From December 2023 onwards, you don’t need a planning permit for granny flats under 60m2 on properties over 300m2. But you still need a building permit to meet residential design codes.
Can I sell my granny flat separately from the main property?
No, granny flats can’t be subdivided or sold separately in Victoria.
Who can live in a granny flat?
No one, there are no restrictions on who can live in a granny flat in Victoria.
How much does it cost to build a granny flat in Victoria?
Building a granny flat in Victoria costs between $80,000 and $160,000, depending on size, design and specifications. High-end custom builds can cost over $200,000.specifications. High-end custom builds can cost over $200,000.