What our analysis shows
Our calculations, data as of 23 October 2026
- A standard 60 m² small second dwelling comes to $198,800 turnkey in Melbourne ($175,000–$222,500), with no council contribution to add. Regional Victoria: $169,300.
- The new 80 m² size costs about $253,400, or $2,730 for each extra m². The kitchen, bathroom and connections are already paid for, so the extra space costs less per m² than the first 60.
- At the same two-bedroom rent, the 80 m² flat takes 2.5–4.0 years longer to pay back than the 60 m² one in every council area we ran. The extra space pays only if it adds a bedroom or a use, such as housing a parent, that you would otherwise pay for.
- The ground decides more of the Melbourne bill than the floor area. Reactive clay in the north and west can need an engineered slab, and a bushfire or flood overlay can push the flat into a standard planning permit.
Fastest payback in Victoria, 60 m² two-bedroom flat
- City of Melbourne9.3 years
- Merri-bek10.5 years
- Monash10.7 years
- Darebin10.9 years
- Whitehorse10.9 years
- Knox11.6 years
- Greater Bendigo12.1 years
- Greater Geelong12.4 years
After agent fees, insurance, maintenance and tax at 30%, no loan. Rents: Homes Victoria, median for new lettings by council area, September quarter 2025 (latest published).
What you pay for
| Line, 60 m² in Melbourne | Cost |
|---|---|
| Construction | $163,800 |
| Site preparation (flat, easy access) | $12,000 |
| Sewer, water, power and stormwater connections | $10,000 |
| Design, engineering and NatHERS energy rating | $8,000 |
| Approval: Building permit only (no planning permit) | $5,000 |
| Total | $198,800 |
Small second dwellings are exempt from development contributions and infrastructure contributions, so the bill has no council line. The planning rules require no car space for the flat, which saves a slab and sometimes a crossover.
| Size | Budget | Standard | Premium | Standard, regional |
|---|---|---|---|---|
| Studio, 35 m² | $120,100 | $139,100 | $170,400 | $120,400 |
| 1 bed, 45 m² | $138,300 | $161,500 | $199,500 | $138,800 |
| 2 bed, 60 m² | $168,800 | $198,800 | $247,900 | $169,300 |
| 2 bed, 70 m² | $191,100 | $226,100 | $283,400 | $191,700 |
| 2–3 bed, 80 m² | $213,400 | $253,400 | $318,900 | $214,100 |
Is 80 m² worth it?
Going from 60 to 80 m² adds $54,600 in our model. Tenants pay mainly by bedroom count, so if the extra space only enlarges the living area the rent barely moves. Payback for both sizes at the same two-bedroom rent:
| Council area | 60 m² payback | 80 m² payback |
|---|---|---|
| City of Melbourne | 9.3 yrs | 11.8 yrs |
| Merri-bek | 10.5 yrs | 13.3 yrs |
| Monash | 10.7 yrs | 13.6 yrs |
| Darebin | 10.9 yrs | 13.8 yrs |
| Whitehorse | 10.9 yrs | 13.8 yrs |
| Knox | 11.6 yrs | 14.7 yrs |
| Greater Bendigo | 12.1 yrs | 15.2 yrs |
| Greater Geelong | 12.4 yrs | 15.6 yrs |
| Casey | 12.7 yrs | 16.1 yrs |
| Frankston | 12.7 yrs | 16.1 yrs |
| Whittlesea | 13.3 yrs | 16.8 yrs |
| Hume | 13.9 yrs | 17.5 yrs |
| Brimbank | 14.2 yrs | 17.9 yrs |
| Ballarat | 14.9 yrs | 18.7 yrs |
| Wyndham | 15.2 yrs | 19.2 yrs |
The larger flat makes sense when the space buys a third bedroom, room for a carer, or a home you expect to move into later. For a pure rental, 60–65 m² with two bedrooms remains the efficient size; see one versus two bedrooms.
One practical catch: the Building Regulations and Minister's Guideline 12 had not been amended to 80 m² when we checked. Until they are, a building surveyor may not be able to issue a permit for a small second dwelling over 60 m² under the simplified siting rules.
Rents by council
Homes Victoria publishes median rents for new lettings by council area; the latest release, checked in October 2026, is for the September quarter 2025, so these rents are a year older than our other states'. Victorian data does not separate detached one-bedroom dwellings from flats, so treat the one-bedroom figures as an upper bound for a backyard flat.
| Area | 1-bed rent | 2-bed rent | 60 m² build | Net yield |
|---|---|---|---|---|
| City of Melbourne | $570 | $678 | $198,800 | 14.5% |
| Merri-bek | $450 | $600 | $198,800 | 12.6% |
| Monash | $495 | $589 | $198,800 | 12.4% |
| Darebin | $420 | $580 | $198,800 | 12.2% |
| Whitehorse | $450 | $580 | $198,800 | 12.2% |
| Knox | $405 | $545 | $198,800 | 11.4% |
| Greater Bendigo | $350 | $450 | $169,300 | 10.9% |
| Greater Geelong | $340 | $440 | $169,300 | 10.6% |
| Casey | $340 | $500 | $198,800 | 10.3% |
| Frankston | $385 | $500 | $198,800 | 10.3% |
| Whittlesea | $375 | $480 | $198,800 | 9.9% |
| Hume | $350 | $460 | $198,800 | 9.4% |
| Brimbank | $330 | $450 | $198,800 | 9.2% |
| Ballarat | $288 | $370 | $169,300 | 8.7% |
| Wyndham | $420 | $420 | $198,800 | 8.5% |
Rent data: Homes Victoria rental report. "City of Melbourne" is the inner-city council area, where few lots have room for a granny flat.
Permits and timing
A building surveyor issues the building permit, usually within a few weeks of complete drawings. No planning permit is needed in most residential zones when the lot is 300 m² or more and no overlay applies. Lots under 300 m² go through VicSmart, decided in 10 business days. Bushfire and flood overlays usually need a standard planning permit with referrals to the CFA or Melbourne Water, which commonly takes 6 to 12 weeks or more. In a heritage, design and development or neighbourhood character overlay, no permit is needed if the flat is no more than 5 m high and finished in muted tones and colours.
Costs to plan for
Much of Melbourne's north and west sits on reactive clay. A highly reactive site class can call for a stiffer engineered slab or piers, which our flat-block site figure does not include; get the soil test before you accept a fixed price. The flat must be all-electric, because small second dwellings cannot connect to gas, so budget for a heat-pump hot water system and induction cooking. It must also meet the National Construction Code's liveable housing standard, which sets step-free entry and wider doors and can dictate where the path from the street goes.
If you want the tenant to pay for water, Victorian tenancy law requires the flat to have its own meter from the water corporation, which also charges for a new connection. Domestic building insurance is required from the builder on work over $16,000. Renting the flat makes its part of your land taxable from the 2026 land tax year; see granny flat land tax. In the General and Neighbourhood Residential zones the lot must also keep its minimum garden area, 25–35% depending on lot size, which can rule out a flat on a small, built-up block.
This week's worked example
Week of 19 October 2026. A new example, rule and owner report every Monday.
A 50 m² one-bedroom flat with a standard finish on a flat block, services 20 m from the house, in Ballarat: our model puts it at $149,700 turnkey ($131,500–$167,500), or $2,990 per m². At the area's median 1-bedroom bond rent of $288 a week it would return 7.4% net and pay back in 17.2 years after tax.
Rule check: From the 2026 land tax year, Victoria taxes the part of a home's land that contains a rented granny flat and keeps the rest exempt; before 2026 earning income could cost the whole exemption.
From an owner (VIC, 2023): A Victorian owner-builder found the rules let them do framing, cladding and plastering, but not footings, subfloor, roofing, waterproofing, wiring or plumbing.