Granny flats are the latest hope to solve the nation's housing crisis

It is part of the government's response to the state's housing crisis.

It doesn't have to be a granny flat - there are will be no restrictions on how a small second home can be used.

That second home can be used for family members, provide temporary housing or be rented out for extra cash.

Similar reforms to rent out granny flats have also been adopted in Queensland, Canberra, NSW and South Australia.

While some of the red tape has been cut, there is still plenty of rules which remain in Victoria.

Those second homes will need to be under 60 square metres.

To give that some scale, a caravan is between 20-25 square metres.

The property it is being built on must also be 300 square metres or larger.

The property must not have flooding or environmental overlays, or restrictions.

Although they were not need a planning permit they will still need a building permit and will need residential setback and siting requirements.

They also cannot be subdivided or separately sold off from the main home.

Similar reforms were announced in Sydney over a decade ago.

Research firm, the e61 Institute, said the Sydney reforms have worked.

"Our analysis found that secondary dwelling approvals surged in Sydney in the decade following the implementation of similar reforms in 2009," e61 Institute research economist Matthew Maltman said.

"From 2006 to 2021, secondary dwellings almost tripled as a share of detached housing, from 0.3 per cent to 0.9pc," Mr Maltman said.

"This contributed 1.5pc of Sydney's total housing growth, and was 6.1pc of Sydney's growth in detached housing," Mr Maltman said.

The South Australian government has also recognised the value of granny flats as a way to boost rental supply.

The government passed legislation to stop local councils from preventing homeowners from renting granny flats to anyone other than immediate family members.

Queensland has also changed planning rules to allow Queenslanders to rent out their granny flats.

Restrictions on who can live in granny flats will be removed so secondary dwellings can be rented on the open market, according to Premier Annastacia Palaszczuk.