Backyard Density Could Fast-Track Australia’s Housing Supply

Demand for granny flat housing is forecast to reach ten times its 2022 level this year, but Australian states and territories are failing to deliver. None of the regions have scored above three-out-of-five on planning reform, according to the Housing Industry Association’s 2026 Planning Blueprint Scorecard. And as the gap between housing demand and delivery continues to widen, the impact of a housing format that can be activated without new land releases, major infrastructure investment or extended approval timelines, is yet to be realised. Industry is calling for a national framework to enable secondary houses of up to 90sq m to bypass standard planning approval processes. Backyard density, which comprises secondary homes built on existing residential land, can be tenant-ready in about four months under current planning settings, compared with at least eight months for large residential developments. How the states stack up The HIA scorecard audits Australia’s fragmented planning systems across all states and territories. Western Australia and South Australia lead the rankings. WA has expanded Development Assessment Panels and streamlined single-house approvals, while SA has introduced a single digital planning scheme and a nation-leading land supply dashboard. NSW has recorded the most significant improvement through state-led rezonings, pre-endorsed design pattern books and a new development co-ordination authority. Victoria is showing some gains in townhouse and small subdivision approvals, though new taxes tied to affordable housing obligations and the Suburban Rail Loop are affecting project viability. The Department of Transport and Planning estimates around 700,000 residential lots across Victoria meet the minimum 300sq m threshold required to add a secondary home under current planning settings. ▲ Investor interest in secondary homes is growing as larger residential projects face prolonged approval timelines and rising costs. Queensland is at the bottom of the rankings, having rejected key Productivity Commission reforms in deference to local government opposition. Both Tasmania and the Northern Territory face unresolved infrastructure funding and land-use strategy delays. Hitting National Housing Accord targets now requires 260,000 new homes per year because of accumulated shortfalls in previous years. HIA executive director of planning and development Sam Heckel says Australia needs a nationally consistent framework allowing backyard density homes of up to 90sq m to bypass standard planning approval processes, pointing to Tasmania and New Zealand as existing models. Victoria’s current planning permit exemption applies only to homes of up to 60sq m, which is a 30sq m gap highlighting the inconsistency a national framework would need to resolve. “Inconsistent regulations across state and local government lines are adding unnecessary complexity and thousands of dollars in hidden costs which often do not improve outcomes,” Heckel says. Capital follows certainty Maple Investment Group chief executive Beau Arfi says the feasibility case for backyard density is built on infrastructure that already exists. Secondary homes unlock underutilised land without the cost base of a conventional development, he argues, because services, access, and in many cases, zoning are already in place. ▲ Arfi says for institutional capital to embrace backyard density, the settings need to support certainty and ongoing investor participation. “Instead of pursuing a larger, higher-risk project, you can generate additional yield from an existing asset with a relatively modest capital outlay,” Arfi tells The Urban Developer . “A well-executed secondary dwelling can materially increase rental income without the same level of exposure you’d see in a traditional multi-residential development.” Capital is already responding, Arfi says, as investors are becoming more defensive in how they deploy capital in a tighter market and backyard density fits the resulting preference for faster, lower-risk pathways. Any reduction in mechanisms such as negative gearing, he says, risks shrinking the rental pool by pushing properties toward owner-occupation as investors exit. For institutional capital to treat backyard density as a portfolio strategy rather than a one-off play, Arfi says three conditions need to align: standardised approval pathways across councils, consistent product specifications that can be replicated site to site and the ability to manage holdings at portfolio scale. “Certainty on planning is the precondition,” he says. “Scalability is what turns it into an asset class.” Arfi says Victoria’s settings are among the most favourable on paper, with many secondary dwelling projects not requiring a full planning permit. Slow council processes and inconsistent timelines, however, are still creating bottlenecks in practice. “Jurisdictions that can align fast, consistent approvals and clear, predictable rules will be the ones that unlock the most supply,” he says. Big retail enters the backyard Bunnings’ move into prefabricated backyard rooms is the latest sign that demand for backyard density is reaching the mainstream. ▲ Custodian managing director James Fitzgerald (left) and HIA executive director of planning and development Sam Heckel (right). Custodian managing director James Fitzgerald points to Bunnings’ prefabricated backyard rooms priced between $26,000 and $43,000 as evidence that the distribution infrastructure for backyard density is maturing. A retailer of Bunnings’ scale, Fitzgerald tells The Urban Developer , doesn’t need to reinvent housing, it needs to normalise it. A $20-billion business with national logistics and consumer trust entering a category typically drives prices down and adoption up. Current products are basic, with no kitchen or bathroom, but Fitzgerald sees that changing quickly. Fully self-contained prefab modules delivered and installed for under six figures, he says, are a near-term prospect and at that point, the ability to add rental income without acquiring additional land becomes a serious strategy in supply-constrained markets. For now, planning policy remains the primary barrier to backyard density reaching its potential. “Backyard density is one of the few options that can be deployed quickly, at scale, and without reshaping entire suburbs,” he says. “The land already exists. The services are already there. What’s missing is a consistent, practical pathway to make better use of it.”

Backyard Density Could Fast-Track Australia’s Housing Supply

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