Bring on the granny flats

Australia has a housing problem: we simply haven’t built enough of them to accommodate our growing population, which the government estimates will continue to increase from around 26.5 million to 40.5 million by 2050. All else equal, that means we need about 50% more housing than we have today, and the old strategy of simply building out forever just won’t cut it. Believe it or not, some cities are actually getting less dense:

“Perth’s sprawl now stretches almost 150 kilometres from Two Rocks to Dawesville.

The latest figures suggest that the rate of inner urban infill housing is declining. The latest Urban Growth Monitor showed that infill in the central sub-region fell to only 2820 dwellings, its lowest level since 2013. Apartments have also declined and currently sit at just 2 per cent of all dwelling approvals, down from historic levels of 13 percent.

It is estimated that more than two-thirds of the new housing currently being built is on greater Perth’s expansive urban fringe. Housing a long way from anywhere. Bunbury will be a contender to be Perth’s most southern suburb at the rate we’re going.”

The solution isn’t technical but legal, although these days I’m not sure whether praying for a technological breakthrough or convincing a politician to commit to reform is the easier task. But there is good news, and that is improving housing supply in the short term can be done relatively quickly via the humble granny flat. From the Guardian:

“Research published on Tuesday identifies 655,000 existing homes in the capital cities that have the space to build a self-contained two-bedroom development on site. The report by Archistar, Blackfort and CoreLogic says 17.6% of all Sydney metro properties (including the Central Coast) have the potential to house a granny flat. In Melbourne the figure is 13.2%.

More than a third of the potential developments are within 2km of a train station and 17% have a hospital in the same suburb, the authors claim. They say granny flats could provide affordable housing for essential healthcare workers as the national housing market grapples with an undersupply of about 106,300 homes in the next five years.

The research director at CoreLogic, Tim Lawless, said granny flats could help ease the housing crisis.

“For policymakers and government, granny flats present an immediate and cost-effective opportunity to deliver much-needed housing supply within existing town planning guidelines,” he said.”

California – notorious for expensive housing – passed several laws legalising accessory dwelling unit construction (their name for the granny flat) from 2016 to 2020, to the extent that they now make up 19% of housing construction permits in Southern California, and are mostly built “in jobs-accessible neighbourhoods”. It has generally been considered a success and while housing is still stupidly expensive, it would be even worse without those changes.

We could do the same here. Students, elderly parents, and essential workers would all benefit from simply letting people build a granny flat on their property. The country would also benefit because those people have to come from somewhere, freeing up housing for others.

But building granny flats alone won’t increase the housing stock by 50% over the next 25 years. In the longer term, State governments need to allow people to not only build out, but also UP.

Politicians need to stop telling Australians what they want and let them vote with their wallets. And I’m sorry, but if you’re a politician who is not actively trying to legalise housing choice then you’re implicitly agreeing that density is bad and you know better than people who might want to live in an inner-suburb dwelling without having to be a millionaire.

Reform won’t be easy; it means changing zoning laws and doing the even harder work of reducing transaction costs such as “permitting, but also minimum lot size requirements, maximum density limits, minimum parking requirements, community benefits arrangements, mandatory environmental reviews, management of public relations campaigns to forestall city council pressure, and generally, the expense of lawyers and experts to navigate regulatory obstacles”. History has shown that when costs are concentrated on a few (existing residents), while the benefits are dispersed (people who might want to move there), and only the former have voting/veto power, nothing will get built unless residents are adequately compensated.

Zoning reform without minimising transaction costs will result in developers’ margins being so tight that they won’t be able to compensate residents for the inconvenience of medium density, who will then fight tooth and nail against any incursion on their good fortune of being born early enough to be able to afford an inner-suburb, single-family dwelling on a ’normal’ wage. Even worse, the only projects that will make financial sense after considering transaction costs will be large in scale – precisely what local residents most despise.

Fix zoning, fix transaction costs, and just maybe we’ll finally solve the ‘missing middle’. But in the meantime, legalise granny flats everywhere!