Are granny flats a housing solution?

Sydney property owners are making big money out of their backyards, with the number of granny flats and new dual occupancy developments jumping by nearly 20 per cent in just one year.

The latest NSW Government Local Development Performance Monitoring 2012-13 report was released earlier this month and gives an important health check into the state of the planning system.

One outcome it reports is the strong increase in “second occupancy” approvals – namely granny flats (where a new dwelling is produced but remains on the same title as the original house) and dual occupancies (where the new dwelling is subdivided and sold separately).

While there a number of ways to build “second occupancy” developments, the standard and best-known way is to plonk a new home in the backyard.

Overall, some 2,867 “secondary occupancy” approvals were given in 2012-13, up from 2,411 in 2011-12 – an increase of 19 per cent. They now make-up one out of seven new residential dwelling approvals across the State, compared to just one out of nine in 2010-11.

Granny in a flat (or at least a kitchen somewhere)
Granny in a flat (or at least a kitchen somewhere)

According to the report, the councils with the highest number of “second occupancy” developments included Bankstown, Parramatta, Fairfield, Holroyd and Penrith. This is hardly surprising – given these areas contain housing blocks which can accommodate this form of development.

Importantly, one third of all new “second occupancy” developments in 2012-13 were achieved through the fast-tracked complying development system, where developers are getting an approval in just 17 days from an accredited certifier. This compares to the Statewide processing time for a development application of 68 days.

The NSW Government’s Affordable Rental Housing State planning policy, first introduced by former Labor Planning Minister Kristina Keneally in 2009, expressly supports fast-tracked approvals for granny flats and what’s more can be used to over-ride council rules. When the Coalition came to power in 2011, it made a number of changes to this policy to better consider local character issues for new townhouse and villa developments but left the granny flat rules in place.

According to the report released last month, out of the 2,867 “secondary occupancy” approvals mentioned above in 2012-13, some 1,010 were granny flats approved using the 2009 policy.

The Coalition’s decision would seem to be a reflection that granny flats have a reasonably broad acceptance and are part of the Australian vernacular. They are “soft” form of density and are quietly playing a small but important part boosting our housing supply and providing work for builders.

And in town planning, it is hard to achieve new housing without causing friction and fury in the suburbs. Granny flats are, by and large, achieving this.

Of course, many of the granny flats are actually being used as investment properties – effectively doubling the rental return for homeowners.

Granny flats work much better for investors than owner-occupiers. This is because an owner-occupier who builds a granny flat in the backyard of the family home (and then collects rent from it) could be exposing the entire home to capital gains tax. This is explained in more detail in this story in Property Investor magazine.

One other point from the government’s new report though – it would have been good to get statistics for the other housing types in the Affordable Rental Housing policy. Anecdotal evidence for instance suggests an upsurge in boarding houses in inner-Sydney, approved under the policy . They are another “soft” form of density (although one which causes more friction than granny flats).

Unfortunately, the statistics are not there to show whether this is the case.

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