Breaking the rules? Informal housing,urban deregulation and secondary dwellings in Australia

Abstract

Secondary dwellings, from ‘backyard’ and basement units to converted garages or ‘granny flats’ are increasingly viewed as a potential source of lower cost rental accommodation. However, in many cities of the so-called global north, secondary dwellings are restricted under local planning rules designed to maintain lower density residential neighbourhoods. This article examines the outcome of planning reform to legalise secondary dwellings as a housing solution, in the state of New South Wales, Australia. Traditionally, secondary dwelling production has been seen as a form of unregulated/informal dwelling type. In response to a chronic shortage of affordable renting supply, this paper considers how the state has undertaken a process of deregulation of planning controls to permit secondary dwelling production. We call this an example of ‘calculated informality’. We examine the case with reference to data on the geography and scale of secondary dwelling production, as well as interviews with secondary dwelling industry groups and local council officers responsible for enforcing planning regulation. Our analysis shows that deregulatory reform enabled an informal rental market in secondary dwellings to grow at scale; however, affordability and secure private rental outcomes remain unclear.

Keywords

Affordable housing deregulation informal housing planning controls secondary dwellings

Introduction

Housing affordability pressures are increasingly impacting cities and regions across the world. In the so-called global north, the commodification of housing combined with reform to the welfare state have sharpened the divide between property owners and renters, leading to deepening inequality and unmet housing need. In common with many nations, Australian governments have increasingly sought to respond to these problems with ‘supply side’ reforms – deregulating urban planning controls to liberate private housing construction (Beer et al., 2007). In addition to overarching deregulatory strategies which target restrictive residential zoning, there have been efforts to dismantle specific barriers to diverse or low-cost forms of accommodation such as secondary dwellings. This article examines the outcomes of such strategies, focussing on deregulatory planning reforms in Australia’s most populous state of New South Wales (NSW). The reforms overruled local controls to enable secondary dwellings to be constructed ‘as of right’ in most residential zones, and entrusted regulatory oversight for ‘complying’ units to private certifiers.

Originally conceived as a flexible unit for extended and/or elderly family members, secondary dwellings (often called ‘granny flats’ or accessory units) have re-emerged in many cities as an informal and sometimes illegal source of rental housing (Durst and Wegmann, 2017; Wegmann and Chapple, 2014). In these contexts, overturning local rules to permit and legitimise secondary dwellings has been seen as a lower impact way of increasing rental housing supply, particularly in lower density suburban contexts. In these ways, legitimising and enabling secondary dwellings has been pursued as a strategy for indirectly improving affordability by increasing overall rental supply while also directly delivering a type of ‘naturally occurring’ affordable housing – that is, housing that is unsubsidised and provided by the private market (Anacker and Niedt, 2019; Kang and Jeon, 2021). In analysing the Australian example, we draw on interviews with planners and industry groups to examine how NSW planning reforms to override local restrictions enabled a rapid increase in secondary dwellings over the decade between 2008 and 2018, leading to a new market in ‘granny flat’ construction and rental accommodation.

The article is divided into five main sections. We begin with a brief introduction to the literature on informality in urban and housing contexts, as well as the role of deregulation as a strategy for urban reform which legitimises and enables forms of informality to emerge. The following sections introduce our research methods and case study, explaining the context for housing affordability pressures and deregulatory planning reforms in NSW. We then draw on our interview data to highlight ways in which these reforms enabled an industry in secondary dwelling production and an alternative rental market to emerge. We conclude that the NSW government’s attempt to enable secondary dwellings through deregulation is an example of ‘calculated informality’ (Roy, 2009), which primarily serves to open new opportunities for residential investment in Australia’s increasingly financialised private rental market. However, the extent to which the new residential supply delivers appropriate and affordable housing for low-income renters is unclear.

Informality and deregulation as a strategy for urban and housing reform

There is a rich and growing literature on informality within urban and housing contexts. Much of this literature has been produced in the so-called global south. Writing primarily with reference to the so-called global south, Ananya Roy distinguishes between unregulated urban systems, which include forms of self-help or self-provisioning and deregulated systems (Roy, 2009) whereby the regulatory power of the state is deliberately withdrawn. She argues that the selective removal of regulations creates a conducive environment for ‘calculated informality’ to emerge (Roy, 2009) to allow (selective) forms of informality across labour markets and urban space.

Until recently, the term ‘informal’ was rarely applied to housing or urban practices within the so-called global north (Shrestha et al., 2021). However, a growing number of researchers identify types of informal housing across the United States, Canada, Europe and Australia. In addition to secondary units and informal rental markets (Usman et al., 2021), informal housing practices in the United States also includes ‘colonias’ and informal homestead subdivisions within rural or peri-urban, border areas (Ward, 2014). In Canada, ‘secondary suites’ include legal as well as unpermitted and hidden basement suites (Mendez, 2017), while in England and Australia, ‘beds in sheds’ are beginning to emerge in the context of a rental affordability crisis (Gurran et al., 2021; Kelling, 2021; Lombard, 2019). In Europe, informal housing approaches range from illegal and non-compliant development (Calor and Alterman, 2017; Chiodelli et al., 2021) to the precarious arrangements made by low-income earners, new migrants and asylum seekers (Papatzani et al., 2022; Vasudevan, 2015).

Understanding informality

There are many different ways in which the term ‘informal’ has been used in relation to urban and housing systems, ranging from economic practices and labour relations to housing production and rental markets (Iveson et al., 2019). Some scholars distinguish between ‘informality’ (practices that are self-organised and not directly regulated by the state) and ‘illegality’, activities which evade or deviate from established rules and processes such as those applying to urban development or housing (Alterman and Calor, 2020). Pointing to selective enforcement practices that tend to ‘turn a blind eye’ to unpermitted or illegal constructions by wealthy or powerful actors, they separate these from informal practices undertaken by lower income groups unable to afford housing, which complies with prevailing rules and regulations (Calor and Alterman, 2017).

Similarly, recognising the multi-faceted nature of informal housing practices in the so-called global north, Harris (2018) defines informality with reference to accommodation which breaches regulatory controls (for construction, occupancy, or tenure) or which offers residents fewer protections from these laws. Often the lower level of regulatory oversight – for instance, over the quality of construction, the properties and condition of the dwelling, or the terms of the rental lease – means that housing costs may be lower. Therefore, some see informal housing as a response to problems brought about by the failure of the state to provide sufficient social housing (Harris, 2018).

An alternative view regards regulation as the cause of affordability pressures, blaming local planning rules or zoning controls for preventing diverse and lower cost housing types and impeding the free market (Glaeser and Ward, 2009; Lens, 2022). These views imply that under restrictive planning regimes, low-income earners are forced to experience high-cost burdens or seek alternative housing types that may evade regulation. In the so-called global north, informally organised share accommodation, negotiated room rental agreements, or unauthorised constructions are all examples of activities that fit within this definition of informality (Shrestha et al., 2021). Thus, state actions, either by tolerating rule violations or by loosening such rules to enable new and diverse housing production, can be understood as a deregulatory strategy which favours producers and/or which relieves the state from responsibilities to the urban poor.

Deregulation

Deregulation occurs within the wider political process of neoliberalism, which emphasises the role of the free market rather than the state (Sager, 2011: 148). Deregulation does not necessarily mean that all rules are cleared away but rather they may be reformulated or reworked, perhaps altering the balance of private versus public interest; Marcuse and Madden (2016) in their seminal book define deregulation as the ‘weakening’ or ‘rewriting’ of regulations rather than removal or subtraction of the state. They see this strategy of loosening regulations as enabling the commodification of housing. There are often new sets of regulations devised to replace the controls that have been cleared away, although these are intended to be implemented with less onerous requirements and oversight. Thus, although the articulation of new sets of codes and rules can appear to be an additional ‘rolling out’ of state regulations or ‘re-regulation’, the overall regulatory burden appears to be reduced.

Within the planning sphere, deregulation – the clearing away of planning controls perceived to constrain diverse, and often higher density residential development – has long been promoted as a key response to housing affordability (Gunder, 2016; Gurran and Ruming, 2016). According to this narrative, advanced by prominent economists (Glaeser and Ward, 2009; Gyourko and Molloy, 2015) as well as many industry proponents, housing affordability pressures affecting low-income renters and aspiring home purchasers reflect a shortage of new housing supply which pushes up prices and rents across the market (see Phibbs and Gurran, 2021: for a review). Rather than providing increased social housing, governments and other actors have sought to enable market responses to unmet housing needs. According to this view, the clearing away of restrictive development controls through a process of deregulation represents a more ‘efficient’ and ‘effective’ strategy to enable the housing market (Van der Heijden, 2010).

Focusing specifically on the relationship between planning controls, deregulatory strategies and informal housing in the United States, Durst and Wegmann (2017: 282) construct a typology of informal housing which is ‘non-compliant’ with applicable controls, situations in which controls are ‘non-enforced’ and housing which is produced or offered within a ‘deregulated’ economic context. Different notions of unregulation, regulation and deregulation are summarised in Table 1, which highlights the difference between forms of self-help or non-market activities and their opposite – a laissez faire or free market context.

Table 1.

Unregulated, regulated and deregulated (re-regulated) systems of housing provision.

Unregulated housing practices	Regulated housing practices	Deregulated (‘re-regulated’) housing practices
Self-help (non-market) / laissez faire (market)	State regulations and laws to correct market failure/ promote public interest	Relaxation of controls/standards Intended to enable market activity
Limited to non-existent enforcement	Systems of enforcement	Often involves new sets of codes / industry enforcement, but this ‘re-regulation’ implements a reduced regulatory burden
Examples include unpermitted dwellings / alterations; informal rental markets	Examples include planned & permitted dwellings, rental markets	Examples include ‘fast track’ housing approvals; ‘as of right’ provisions; secondary dwelling codes

Source: Authors drawing on Roy (2009); Durst and Wegmann (2017).

As shown, examples of ‘unregulated’ housing practices include both self-help expressions of informal provision (such as unpermitted extensions undertaken by people unable to meet the costs of legal compliance) and laissez-faire markets that emerge with limited to no control (such as informal rental markets). The selective enforcement of regulations might also fall within this understanding of an ‘unregulated’ system. Regulated contexts are designed to promote the public interest by establishing and enforcing baseline standards for urban development (and rental housing), which operate to control the ways in which development is carried out, and include systems of enforcement applying to both housing construction as well as landlord obligations. Deregulated systems seek to relax these parameters, typically as a strategy to encourage new development or market activity to occur. However, the loosening of the regulatory burden is usually intended to retain some balance between maintaining public interest standards and enabling private activities, so may be expressed in the form of easily administered codes and less onerous requirements for compliance. Here, in this case the weakening/rewriting of regulations can also be viewed as a form of ‘re-regulation’ to enable the market (Aalbers, 2016; Castree, 2008; Igoe and Brockington, 2007; Majone, 1990).

Secondary dwellings: from unregulated to deregulated

Secondary dwellings, an additional housing unit within a principal residence, have a long history. During the 19th century, secondary dwelling units were often used to accommodate domestic help in the United States and United Kingdom, so associated with staff quarters and low-wage labour (Antoninetti, 2008). In Canada during the 1920s, basement units and secondary suites within larger houses became a popular alternative to boarding house accommodation (Harris and Kinsella, 2017). However, the proliferation of restrictive residential zoning regulations following the Second World War inhibited secondary dwelling production in many parts of North America.

In the 1960s and 1970s, the idea of a secondary dwelling for elderly accommodation gained popularity as a strategy for ‘aging in place’ (Lawler, 2001), or residing in close proximity to extended family (a ‘granny flat’). The typology of a self-contained garage or garden unit used for extended family and in some cases a lodger who paid rent directly to the onsite owner occupiers of the main dwelling, largely occurred beyond planning and building regulation. In Australia, the first recorded ‘Granny Flat’ was documented in 1963 in the state of Victoria by Dr Hubert Bauer, whose idea was later adopted by the Victorian Housing Commission as a movable, self-contained mini house for the elderly (Power, 1991).

The flexibility of these moveable units which did not require changes to local zoning was picked up by advocates in the United States, where the Association of Retired Persons (AARP) promoted a version of the scheme known as Elder Cottage Housing Opportunity (ECHO). In Australia permissibility of granny flats was often contingent on the dwelling being occupied by a family member only and not rented to a third party. However, by the early 1980s, some jurisdictions were viewing secondary dwellings as an opportunity for residential intensification and soft, in-fill densification/development. For instance, the State of California passed laws to encourage Accessory Dwelling Units (ADUs) within single-family neighbourhoods in the early 1980s (Hare, 1991), and in parts of Canada such as Vancouver, policies have actively encouraged the creation or legalisation of basement suites (Harris and Kinsella, 2017). Thus, there has been a shift towards ‘deregulating’ the planning constraints preventing secondary dwellings in ‘single family zones’, particularly via state laws that actively encourage local permissibility (American Planning Association, 2022).

Deregulating secondary dwelling production in NSW

Australia remains primarily a nation of home owners, with around 65 per cent of households living in their own property (Australian Bureau of Statistics, 2016). However, rates of home ownership have been falling, particularly among younger aged cohorts. Less than 5 per cent of households live in social housing, while the remainder occupy a private rental sector which offers limited security of tenure. Over 90 per cent of very-low- and low-income renters in Sydney pay more than 30 per cent of their income on housing, reflecting a chronic and rising shortage of affordable rental supply. In terms of dwelling type, detached homes on single allotments dominate the housing stock in Australia, with 72.9 per cent of all occupied private dwellings being separate houses; however, this is changing, particularly in Sydney where there has been extensive construction of medium and higher density apartments over the past three decades (Australian Bureau of Statistics, 2016). According to the recent ABS Census, there has been a modest increase in the number of households living in apartments or flats from 13 per cent in 1996 to approximately 15 per cent in 2021 (Australian Bureau of Statistics, 2001; Australian Bureau of Statistics, 2021).

Under Australia’s federal system, the responsibility for planning, building control, and the private rental market rests with the eight state and territorial governments. Local councils have traditionally regulated land use zoning and development control within their municipalities although these powers are subject to strong state oversight. The national Commonwealth government has limited responsibility for housing matters although it has traditionally funded housing assistance programmes, supporting social housing construction by the states and providing a rental subsidy for low-income earners. Over time, funding for new social housing construction has contracted sharply, and while the Commonwealth’s expenditure on rental assistance has grown, more than a third of recipients remain in housing stress – paying more than 30 per cent of their income on rent (Australian Institute of Health and Welfare, 2021).

Deregulation and private sector involvement in building control in Australia began in the early 1990s and was largely a ‘top-down’ initiative whereby the Commonwealth led a wider reform process known as the National Competition Policy (NCP). Over time this policy became the instrument for the wave of macro- and micro-level changes to government approaches to industry regulation more broadly, with implementation at State and local government levels (Van der Heijden, 2010). The planning sphere was one of the sectors to be targeted for change under the NCP, with a key focus falling on consistency of planning rules across jurisdictions as well as certainty and speed in development assessment. In NSW, a series of planning reforms were implemented to address elements of this agenda, including the introduction of State Environmental Planning Policy (Exempt and Complying Development Codes) (2008). The main objective of this reform was to enable the market through ‘efficient’ and ‘effective’ strategies by streamlining the assessment process through the promulgation of preset codes. In the context of NSW, this meant fast-track approval process known as complying development, whereby ‘if the application meets specific standards and land requirements a Complying Development Certificate (CDC) can be obtained through your local council or an accredited certifier without the need for a full development application’ (NSW Government, 2022).

Australia’s urban reform agenda has also sought to deregulate residential planning controls (reduce requirements and/or extend rezoning instruments for a wider geographical area), which are seen as strategies for enabling new and diverse housing production. It was within this context that the NSW state government introduced the Affordable Rental Housing State Environmental Planning Policy (ARHSEPP) in 2009. The policy included a range of measures designed to preserve existing sources of low-cost rental accommodation provided by the private sector, such as boarding houses, and to encourage new and diverse forms of affordable or lower priced rental supply. A key measure of this policy was to deregulate or reduce the regulatory burden of the planning framework surrounding the construction of secondary dwellings, which were subject to a varying range of local zoning constraints and development criteria (Gurran et al., 2018). Even where secondary dwellings were permissible within local zones and compliant with applicable development criteria (such as minimum allotment sizes, building setbacks, parking or other standards) the local development assessment, consultation, and approval processes often appeared long and uncertain to stakeholders (Ruming, 2012). The ARHSEPP (2009) policy sought to overcome these local constraints by establishing a state-wide framework for permissibility and enabling proposals which comply with the state’s code to be approved by private sector certifiers in less than 10 days, without the need for consultation with neighbours or council involvement.

In deregulating the planning framework applying to secondary dwellings, an implicit intention was to enable a private industry in secondary dwelling construction, which, it was thought, would emerge in response to the certainty offered by a clear and consistent code and approval pathway, enabling efficiencies and cost savings. In turn, it was hoped that this simplified regulatory framework and the availability of specialist builders would encourage property owners to invest in a secondary dwelling, perhaps financed by a rental income stream – which would in turn contribute to the supply of rental housing. The stated objective of ARHSEPP (2009) reflects the intention to promote market-based affordable housing supply and streamlining delivery by expanding permissibility and development incentives:

to facilitate the effective delivery of new affordable rental housing by providing incentives by way of expanded zoning permissibility, floor space ratio bonuses and non-discretionary development standards. (NSW Government, 2009: 5)

This shift from discretionary to non-discretionary (certain) approval of secondary dwellings was implemented through what might be described as a form of ‘re-regulation’ via the State Environmental Planning Policy (Exempt and Complying Development Codes). The ‘Codes SEPP’ established clear criteria for approving secondary dwellings, which meant that the requirements outlined in the code allowed private certification of compliant developments meeting preset codes.

Research approach

To investigate the impact of ARHSEPP a decade after its introduction, we reviewed available data on rates of secondary dwelling construction (2009–2018) and conducted 17 semi-structured interviews with private firms involved in secondary dwelling construction as well as with planners and building compliance officers from local councils (Table 2). These interviews focused particularly on diverse local councils in middle and outer ring areas of Sydney where secondary dwelling production has been concentrated. Interview participants were recruited via direct approach to local councils, as well as targeted contact with major housing construction firms involved in granny flat production. Aside from our geographic focus, we used the ‘snowball’ approach to recruitment, and continued recruiting interview participants across the three main categories (planning, compliance, and construction industry) until we reached saturation – that is, interviewee perspectives became wholly repetitive. In conducting the interviews, our focus was on the impacts of this policy in metropolitan Sydney, which is Australia’s largest city and most costly housing market.

Table 2.

Total number of interviews and key themes for interview questions.

S.no.	Interviewees	Number of interviews	Key themes for interview questions
1.	Industry participants	2	• Impact of deregulatory policies in relation to secondary dwellings (ARHSEPP) • Scale, geography and spatial distribution of secondary dwellings in Sydney • Reasons for building secondary dwellings • Types of clients building secondary dwellings – owners, developers, etc. • Potential financing mechanisms – loans, etc.
2.	Local Council participants (planners – development assessment)	7	• Impact of deregulatory policies in relation to secondary dwellings (ARHSEPP) • Ratio of DAs versus CDCs
3.	Local Council participants (building compliance and enforcement)	8	• Impact of deregulatory policies in relation to secondary dwellings (ARHSEPP) • Nature and scale of complaints in relations to secondary dwellings • Evidence of unauthorised/informal secondary dwellings and potential challenges with enforcement
	Total	17

Source: Authors.

ARHSEPP: Affordable Rental Housing State Environmental Planning Policy; DAs: development applications; CDCs: Complying Development Certificates.

Interviews were conducted between January and June 2020/2022 and explored the impacts of the policy on the housing construction industry and supply of new secondary dwellings. We also sought insights on the policy’s impact on the quality and affordability of lower cost rental accommodation. Interviews lasted around 45 minutes and were recorded, transcribed and coded for thematic analysis. In presenting the results of these interviews, we are careful to anonymise responses because of the potential sensitivity of disclosures for government organisations and commercial firms.

Notably, local planners involved in the study were both familiar with the state policy applying to secondary dwellings and the alternative local planning rules applying to secondary dwellings which do not comply with the state’s preset code. Local enforcement officers are responsible for ensuring that permitted development were constructed according to plan and for preventing unauthorised development or use of buildings – such as illegal construction of secondary units or the use of a non-residential building (for instance, a garage or factory) as a dwelling. They advised that many of their encounters with secondary dwellings were in responding to complaints submitted by neighbours regarding potential unauthorised, non-compliant granny flats which were being rented to tenants.

Interview participants from key private firms involved in constructing secondary dwellings were typically professionals with a background in residential construction and/or development. They had established a specialisation in secondary dwelling production and were able to provide insights into the range of clients seeking new secondary dwellings, including the circumstances of these clients and their stated motivations. Both local building compliance participants and private industry informants were able to discuss processes for private certification of compliant secondary dwellings, or local government planning approval for dwellings which do not meet the requirements of the state-wide code.

To add to these insights on the supply of new secondary dwellings, and to understand the geography and scale of secondary dwelling production in Greater Sydney, NSW, we used NSW Department of Planning, Industry and Environment (DPIE) Housing Activity and Local Development Performance Monitoring (LDPM) datasets which capture yearly development activity overall as well as monthly housing trends. As also noted in Table 2, we posed questions to local council interviewees regarding the scale of secondary dwelling construction within their jurisdictions; however, since there was no clear documentation at the local level in terms of exact secondary dwelling counts, datasets from industry participants were checked against the state government–wide sources to document the scale of secondary dwelling construction across Sydney.

Overall, a limitation of the study is that we have focused on a single jurisdiction (Sydney, NSW) with its housing market and development contexts, as well as specific planning system characteristics, limiting potential for wider generalisations. Furthermore, there are inevitable limitations arising from qualitative research whereby our interviewees offer specific perspectives rather than constituting a fully representative sample of views. In particular, the study design did not extend to directly interviewing the clients of secondary dwelling construction firms – instead relying on the broader ‘birds eye’ view of industry informants. Subsequent research will extend to real estate agents responsible for leasing secondary dwellings on behalf of landlords, providing additional insights into the role of secondary dwellings within Sydney’s private rental market. These limitations notwithstanding, the study approach and findings offer new insights into the role of deregulatory reform as a strategy for encouraging the private construction of new housing supply overall and diverse housing types in particular. The outcomes of the NSW case also shed light on the potential benefits and weaknesses of deregulation as a strategy for improving the supply of rental dwellings and broader housing affordability, in the absence of systemic intervention such as investment in social welfare and housing assistance.

NSW ARHSEPP 2009

The introduction of ARHSEPP in 2009 by the NSW State government brought together a number of existing and new levers intended to promote affordable and lower cost market housing types, largely by overriding local zoning and development controls. In relation to secondary dwellings, the state-wide code offered certain approval for ‘compliant’ secondary dwellings (or Complying Development Certificate (CDC)) via private building certifiers within a 10-day timeframe, without the need for neighbour consultation or to submit applications to the local municipality for discretionary assessment. In this way, the state sought to enable a new industry in secondary dwelling construction to emerge, while also increasing housing supply by allowing owners to rent secondary dwellings separately from the principal residence (SMH, 2008).

Local council participants described ARHSEPP (2009) as overriding their controls in a ‘tick the box’ process:

Prior to the Affordable Rental Housing SEPP, granny flats were not permitted. . .the SEPP overrides council’s local . . . plan. CDC is not a merit assessment, they just simply lodge it, and it’s all tick the box . . . The certifiers don’t let the neighbours know they have approved as a granny flat. Neighbours don’t have a right to make a submission. (Local Council participant, 2021)

The state policy defines secondary dwellings as self-contained units connected to the ‘primary’ home within building envelope or located on the same plot of land. Critically, secondary dwellings approved under the state policy are not able to be subdivided or sold as separate homes. To comply with the state code requirements associated with the policy, secondary dwellings must be built on a total allotment size of at least 450 m² and have a maximum floor area of 60 m² and height of up to 8.5 m. They must be situated at least 1.8 m from other structures on the allotment, 3 m from large trees and the rear boundary, and setback at least 0.9 m from the side boundary (with larger setbacks applying to larger lots or two-storey dwellings) (Figure 1). Code compliant secondary dwellings are not permitted on environmentally sensitive land or sites on which there is a heritage item.

Other criteria within the state address basic privacy, open space, solar amenity and environmental criteria. Only one secondary dwelling may be built per site. Local councils may still impose compulsory contribution fees on secondary dwellings. Secondary dwellings which do not comply with the provisions of the state code may still be submitted to the local council for discretionary ‘merit based’ assessment.

Unfortunately, some interviewees advised that lower residential amenity may be experienced by neighbours of secondary dwellings on adjoining properties, as well as by the occupants of secondary dwellings where they are not related to residents of the primary home. Despite the operation of regulatory standards for privacy, such as building setback requirements, neighbour complaints were commonly reported. Moreover, within ARHSEPP there is also no requirement for amenities such as parking which is a key concern for local authorities:

it’s an invasion of privacy by another family coming in, they may make noise, there may be smell from cooking, this sort of thing. (Local Council participant, 2021)

. . . there is no formal parking required. (Local Council participant, 2021)

the parking issue, that was just – yeah, because that’s a lot of the complaints we get. (Local Council participant, 2021)

Impacts of deregulatory policies on the supply of secondary dwellings

Following the introduction of the NSW ARHSEPP, there was a notable increase in secondary dwelling production. Available state government data, which records secondary dwellings within the broader category of ‘second occupancies’ (including subdivided homes on the same allotment), show a fivefold rise in approval rates from 2009 to 2018 (Figure 2). As outlined above, it is important to note here that precise data on the exact number of secondary dwellings is difficult to obtain.

Although total housing approvals increased over this period of time, secondary dwellings contributed to over 10 per cent of new housing production in 2017–2018 (Figure 3), as also observed by industry participants:

. . .roughly one in every seven dwellings being built is a granny flat. (Industry participant, 2020)

Australia’s Housing Industry Association (HIA) data estimated that NSW produced more than double the number of secondary dwellings than any other state in the nation, an outcome which is attributed wholly to ARHSEPP:

A supportive and flexible planning environment is the key. NSW has this relative to other states and territories. Planning frameworks are the largest single determinant of the number of granny flats constructed in each state. (Housing Industry Association, 2019: 2)

Industry participants interviewed for this study were cognisant of the increase in secondary dwelling production following the introduction of ARHSEPP:

Basically in 2009, if you look at 2008, the amount of granny flats that got approved in New South Wales was something like sub-30. It was something ridiculously non-existent. Then it went from basically zero and it’s jumped to what it is now which is 6000 plus applications per year. (Industry participant, Sydney 2020)

Reiterating the views of their association, they regarded ARHSEPP as instrumental in enabling the secondary dwelling industry to emerge:

It’s – the SEPP is the entire difference. You remove the SEPP, there’s no granny flat industry, full-stop . . . granny flats are the first government initiative in my view that genuinely works without having to prod it along. . .all they did was launch affordable housing SEPP 2009 and the industry got born by itself. (Industry participant, Sydney 2020)

With the need to secure finance for housing construction, particularly medium and higher density housing, the fact that the ARHSEPP reform allowed a form of housing production which was lower cost and simple to finance via commercial lenders (arranged by property owners themselves) was seen as critical to its success:

It didn’t have to have some credit; it didn’t have to have some sort of governing initiative to help boost it. Everyone just connected the dots and started forming companies around it. . .From there to now it’s a dramatic rise to say that you’re building 200 granny flats a year. It’s an industry. (Industry participant, 2020)

Despite the small scale of the dwellings themselves, industry participants advised that their businesses began to represent significant financial value. It was estimated by several interviewees that the largest 10 firms involved in secondary dwelling construction have revenues over 20 million a year, associated with production of between 150 and 250 units.

Similarly, industry participants advised that secondary dwellings have become investment strategies for landlords, and this is reinforced by industry data. Industry data provider and consultancy firm CoreLogic has articulated the potential profits associated with this form of housing development:

Building a granny flat is becoming an increasingly compelling proposition for homeowners in a relatively lacklustre market. Not only can it help to manufacture new capital gains, but it has the potential to generate rental income while meeting demand for more affordable housing. (CoreLogic, 2019)

Estimates of these financial returns are significant:

. . .it could boost the value of the existing dwelling by 30 per cent. For example, adding a granny flat to a $500,000 property could see its market value rise to $650,000 – a significant return on investment. (CoreLogic, 2019)

Spatial distribution and ‘market’ for secondary dwellings

The spatial distribution of secondary dwellings reflects the cadastral pattern of suburban Sydney, where inner city areas typically have smaller allotments of less than 300 m², as well as the socio-economic contours of Sydney’s property market. Due to the minimum lot size (450 m²) requirements for secondary dwellings in NSW, the geography of secondary dwelling construction intensifies in middle and outer ring areas of Sydney (around 15 km from the Sydney CBD), where residential densities are lower:

Fifteen kilometres out of the Sydney city radius it starts happening, I would say. (Industry participant, 2020)

Industry participants identified particular concentrations of secondary dwelling construction in western and south-western areas of Sydney, whereas the more affluent eastern and northern areas see fewer secondary dwellings overall. To the extent they are produced in these areas it is often to serve household needs rather than as a source of potential rental income:

. . .if you’re well-off, if you’re wealthy . . . you just don’t want a granny flat. You just don’t care. You don’t think about putting it in your backyard. (Industry participant, 2020)

For instance, in Northern Beaches . . . they’re still building granny flats for their kids to keep them close. (Industry participant, 2020)

Interviewees perceived that the secondary dwelling development market is split between investors and owner occupiers. Owner occupiers constructing secondary dwellings may be understood to be addressing the needs of their own households, as highlighted by this description of parents seeking to provide for adult children within an unaffordable housing market in Sydney:

The owner-occupier is a mix between the parents moving into the granny flat and the kids taking the main house, to the parents keeping the main house and putting the kids in the granny flat. (Industry participant, 2020)

However, in western and south-western Sydney, interviewees advised that investor landlords as well as owner occupiers were likely to invest in new secondary dwelling construction. These investors are likely to live elsewhere in Sydney and may construct an additional granny flat on their property to essentially double rental yield. This points to an uneven geography of supply of secondary dwellings (granny flats) in Sydney and particular concentration within socially disadvantaged parts of the city.

Shadow rental markets

Interviewees advised that the increasing supply of secondary dwellings within the spatial envelope of principal residences is generating distinct rental markets, characterised by both informal dwelling arrangements and forms of tenure. For instance, while some secondary dwellings will be rented via a professional real estate agent and subject to regulatory oversight under residential tenancy law, others will be leased informally by the property owner, who may reside on site in the principal residence. Secondary dwellings themselves, even when compliant with applicable planning and building regulations, typically afford lower levels of privacy and amenity for occupants and neighbours. Indeed, these compromises are likely to be priced in lower rental costs, reflecting the potential emergence of ‘calculated informality’ enabled by the affordable rental housing planning policy.

Notably, there is no requirement under ARHSEPP for secondary dwellings to be rented at a lower price or affordable rate:

. . .granny flats were $300 to $400 . . .so, they’re not actually that cheap. (Local Council participant, 2021)

Local council planner and industry interviewees also described rental arrangements as precarious, offering minimum or no security of tenure. This is particularly the case when owners rent secondary dwellings directly, bypassing professional real estate agents and formal residential tenancy leases:

sometimes there is no formal tenancy agreement. It’s a cash basis and then the landlord just gets the cash, there’s tax evasion, things like that too could be possible. (Local Council participant, 2021)

Problems may be exacerbated when the owners occupy the principal dwelling, effectively living in very close proximity to their tenants:

. . .when they live at the whim of the landlords in these informal forms of accommodation. Whether the landlord walks in for example into the granny flat, for example, thinking they have all rights to do it. (Local Council participant, 2021)

This shadow rental market has emerged as a result of the lack of affordable and secure rental housing and tenancy arrangements. The emergence of a shadow rental market as one of several broader outcomes arising from the secondary dwelling initiative was also noted by a parallel study of secondary dwellings in Central and Southern Sydney (Troy et al., 2020).

Deregulation and informal housing

Furthermore, the study found that ‘calculated informality’ via deregulation of planning and building controls to enable lower cost rental supply within secondary dwellings was not sufficient to prevent other, less desirable housing outcomes. In fact, contrary to this expectation, local council enforcement officers advised that unauthorised secondary dwellings had become an increasing problem in some parts of Sydney. This presented as secondary dwellings which failed to meet the requirements of the standard building code, resulting in housing of very poor residential amenity and which was often unsafe:

Sometimes, within a garage structure or an outbuilding which probably is meant for like a shed, but it probably ends up being a habitable space, . . . the situation was so bad in terms of amenity and safety for the occupant. (Local Council participant, 2021)

It’s . . .. horrific. . . . Just – imagine an asbestos garage from the 1970s, metal roof. I don’t understand how they don’t freeze to death in there. It’s just a garage with a bed and there’s someone in there. (Industry participant, 2020)

Some local councils have expressed challenges due to the hidden nature of this informal housing typology which make it harder to physically identify non-compliant dwelling types or its use/occupation. These dwellings typically come to light through complaints, generally by neighbours:

Suddenly, people – neighbours realise that there is another family living there through the fence or over the fence and see then another family is living in their backyard. They complain, council investigates, then realises it’s not formalised, it’s not approved. (Local Council participant, 2021)

Although these informal secondary dwellings may have been in existence prior to the introduction of ARHSEPP in 2009, local council participants believed that the SEPP itself, combined with the complying development pathway and private certification, has enabled and encouraged illegally supplied secondary dwellings in the private market. They believed this had come about due to the lack of public oversight associated with private certification. In particular, local council planners were concerned about being limited to ‘record keeping facilities’ for private certifiers and not being able to document accurate numbers of CDC approved secondary dwelling constructions within their jurisdictions:

we’re only a record keeping facility for private certifiers. We just have a record of them and they don’t always send them to us so I wouldn’t know how to even get that one. (Local Council participant, 2021)

Another main concern for local councils was the lack of neighbour notification or consultation when compliant developments including secondary dwellings are approved. When neighbours did realise what was going ahead, they tended to resent the development:

The certifiers don’t let the neighbours know they have approved a granny flat. Neighbours don’t have a right to make a submission. (Local Council participant, 2021)

most of the time, the neighbours are not happy. (Local Council participant, 2021)

In addition, some local council planners have expressed concerns regarding not being able to do much in terms of enforcing compliance with key rules and potential ‘dodgy private certifiers’:

So if it’s a granny flat and it has been approved under CDC, well, there’s not much the council can do . . . some of the certifiers were kind of slightly not that prudent, I mean some a bit dodgy sometimes. (Local Council participant, 2021)

This also points to some key issues with a lack of resources within councils as expressed by some of our local council planners:

. . .like councils don’t really have the resources to find those – to, I guess, prosecute the situation. (Local Council participant, 2021)

This points to bigger issues deeply rooted within neoliberal urban policies and governance structures more specifically in relation to deregulation and privatisation of planning and building codes more widely in Australia.

In summary, the implications of deregulating residential planning control for the production of secondary dwellings (granny flats) in NSW have given birth to a new industry and increased new housing supply. As also reflected in our interview with a private developer, the birth of this new industry is entirely based on the process of deregulating residential planning controls through ARHSEPP:

. . .as soon as there was certainty in the planning process, players and an industry was born because they knew that they can go to a client and say, yes, you can build a granny flat. If you remove that ability to say, YES, you can build a granny flat, it just won’t happen. (Industry participant, 2020)

There is also evidence of secondary dwellings being used as both investment strategies in terms of increasing the value of the property and private rental strategies. This may have potentially enabled a new (often unregulated) sector of the rental market, yet the outcomes for low-income renters are still unclear and hidden. Often these are informally rented by the on-site owner/landlord on a cash-basis usually without a formal lease document, potentially leading to loss of tenant protection. Deregulation of residential planning control and privatised enforcement may have eroded some residential standards and basic protections in terms of health and safety for tenants. There is also evidence of uneven spatial distribution of secondary dwelling with particular concentrations within socially disadvantaged areas of the city. Local councils are also concerned over lack of public oversight and amenities. In summary, our above analysis shows trade-offs in terms of equity and accountability as a result of deregulation and privatisation of secondary dwellings which may have led to potential emergence of ‘calculated informality’ at the lowest end of the housing market.

Conclusion

We have examined state attempts to deregulate residential planning controls in NSW as a deliberate action to reduce regulatory rules to enable new market activity and/or avoid welfare responsibilities. The objective, as demonstrated by the reform within the ARHSEPP (2009) regulation, was to boost housing production in lower density residential contexts, as a means of increasing the supply of lower cost rental dwellings, in a context of declining government provision of social housing and limited, inadequate income support. In contrast to forms of informality which might be described as ‘self-help’ (non-market responses) or the total regulatory liberation of laissez faire markets, the NSW approach attempted to find a middle path. Our analysis of deregulation of planning control as a strategy to enable the market highlights critical limitations with the approach of seeking to wind back planning rules to facilitate market responses to housing need.

Here we can come back to Ananya Roy and her discussion on deregulation in the specific context of Calcutta with reference to informality in the so-called global south whereby issues of land are central. Roy, through the case of Calcutta in India, defines informality as ‘a state of deregulation, one where the ownership, use, and purpose of land cannot be fixed and mapped according to any prescribed set of regulations or the law’ (Roy, 2009: 80). In this particular context, Roy’s core argument is that it is the state that has the power to dictate what is formal and informal. This is slightly different in our case study of informality in the so-called global north. Here, the state by deregulating planning and building controls is potentially creating a conducive environment for the production of a calculated form of informality. Deregulatory tools within most cities in the so-called global north has largely been about making the planning system more ‘efficient’ and ‘effective’ to enable the market. In line with these overarching aims of deregulatory tools, the NSW ARHSEPP (2009) achieved efficiency by fast-tracking the development application for compliant secondary dwellings (via private certifiers) as well as effectiveness in terms of increasing the supply and creating a new industry.

Our study suggests trade-offs in terms of equity and accountability as a result of deregulating and privatising planning control for secondary dwellings leading to potential emergence of ‘calculated informality’ – a market driven by precarity at the bottom end. These trade-offs in terms of equity and accountability were expressed by local council planners with the lack of public oversight and amenities that followed the mechanism of fast-tracking development applications of secondary dwelling especially in relation to assessment and documentation of compliant development via private certifiers. Moreover, there is no requirement for secondary dwellings produced through ARHSEPP (2009) to be affordable nor is there state monitoring of its use. These trade-offs are potentially creating conducive environments for ‘calculated informality’. The concept of ‘calculated informality’ opens up new avenues of research specifically in the context of the so-called global north. This study therefore calls for more case study based research on the implications of deregulating planning and building control in the so-called global north cities especially in relation to informal housing practices. More widely, deregulation is seen as ‘neoliberalism in action’ (Aalbers, 2016), which coupled with dismantling of welfare state policies leads to greater societal inequalities. This also calls for more critical, empirically based research to document this action of deregulation and its implications.

Footnotes

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: Australian Research Council (Project ID: DP200103202).

ORCID iD

Pranita Shrestha

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