Four New Rules That Will Reshape Townhouse Design in Victoria (VC267 Update)
Introduction: A Landmark Shift in Townhouse Design
Townhouse and low-rise development in Victoria is about to change in a big way. The introduction of Amendment VC267 brings with it the Townhouse and Low-Rise Code — a major overhaul of Clause 55 that sets new “deemed to comply” standards.
For developers, builders, and investors, this reform is more than just policy. It represents a rare opportunity: faster permits, more certainty, and greater flexibility in design.
But not every rule has the same impact. Four standards in particular — B2-1 (Street Setback), B2-5 (Site Coverage), B3-5 (Private Open Space), and B4-4 (Overlooking) — will reshape how townhouse projects are designed across Melbourne and the rest of Victoria.
At Peninsula Design Drafting, we’re already preparing our clients to make the most of these changes. Here’s what you need to know.
B2-1: Street Setback
What changed:
- Old rule: 9m minimum front setback, often calculated as the average of adjoining properties.
- New rule: Reduced to 6m, taking the lesser setback of the abutting allotment.
Why it matters:
Setback rules directly influence how much usable land a designer has to work with. By reducing the mandatory setback from 9m to 6m, developers can reclaim valuable space at the front of the block. This creates opportunities to:
- Add internal floor area.
- Increase dwelling yield on tighter sites.
- Deliver more functional layouts on deep or irregular blocks.
In areas with established character, this shift will result in denser, more modern-looking streetscapes — while still ensuring enough green frontage through tree canopy requirements (new B2-7).
Developer takeaway: Smaller front setbacks mean more buildable area and better site efficiency. However, sensitive design is crucial to balance yield with neighbourhood character and council expectations.
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T E S T I M O N I A L S
B2-5: Site Coverage
What changed:
- Old rule: 60% site coverage limit across all residential zones.
- New rule:
- 60% – Neighbourhood Residential Zone & Township Zone.
- 65% – General Residential Zone.
- 70% – Residential Growth Zone, Mixed Use Zone, and Housing Choice/Transport Zone.
Why it matters:
This is one of the biggest game-changers for townhouse development. Higher allowable site coverage means:
- More buildable floor space per dwelling.
- Greater flexibility in designing multi-unit projects.
- Stronger yield potential, particularly in GRZ and RGZ zones.
Of course, increased site coverage must be balanced with new tree canopy requirements (B2-7) and permeability standards. It’s no longer just about maximising hard surfaces — smart integration of landscaping is part of the equation.
Developer takeaway: Developers can now build more intensively in growth-focused zones, but designs must also deliver sustainability and amenity. The right balance = higher yield + smoother approvals.
B3-5: Private Open Space
What changed:
Why it matters:
The reduction in private open space requirements is a major win for design flexibility. On smaller or infill sites, a 40m² requirement often forced compromises on internal layouts. With the new 25m² minimum, designers can:
- Allocate more area to living and bedroom spaces.
- Increase dwelling yield without sacrificing outdoor amenity.
- Create smaller but smarter courtyards supported by improved solar access rules.
While the open space requirement is smaller, it doesn’t mean amenity is lost. Good orientation, landscaping, and design detailing will ensure even compact courtyards feel generous.
Developer takeaway: Developers can deliver more floor area internally without being constrained by oversized courtyards. Quality design will be the key to making 25m² of private space feel premium.
B4-4: Overlooking
What changed:
- Old rule: Overlooking standards applied to both bedrooms and living areas, requiring screens or setbacks to prevent direct views into neighbours’ windows.
- New rule: Overlooking rules no longer apply to bedrooms — only living areas.
Why it matters:
This seemingly small change has big implications for cost and design efficiency. Bedrooms can now be placed closer to boundaries or neighbouring windows without the need for privacy screens or awkward design adjustments.
Benefits include:
- Lower construction costs (less need for screening).
- Greater design flexibility in layouts.
- Improved site yield, especially on smaller lots.
That said, overlooking from living spaces (lounges, kitchens, balconies) still needs careful management.
Developer takeaway: By removing bedrooms from overlooking restrictions, designers gain more freedom in layouts and developers can save on compliance costs.
What This Means for Developers and Investors
Individually, these changes open up new opportunities. Together, they mark a paradigm shift in medium-density housing across Victoria.
- More buildable land: Reduced setbacks and increased site coverage give designers more space to work with.
- Smarter density: Smaller open space requirements allow higher yields without compromising liveability.
- Lower costs: Relaxed overlooking standards simplify construction and reduce screening requirements.
- Faster approvals: Projects that are “deemed to comply” will move through planning more quickly — and without third-party appeal rights.
For developers and investors, the message is clear: sites that may not have stacked up financially under the old rules could now be viable.
But with opportunity comes risk. Non-compliance means losing the benefits of the deemed-to-comply pathway. That’s why working with an experienced designer who understands both the rules and their practical application is more important than ever.
Conclusion: Make the Most of VC267 With Expert Design
Amendment VC267 is reshaping townhouse design in Victoria. The four key rule changes — setbacks, site coverage, private open space, and overlooking — are creating opportunities for smarter, denser, and more profitable developments.
For developers and investors, this is the time to act. Sites that may have felt constrained under old standards now present new possibilities. And with faster approvals on the table, getting it right the first time matters more than ever.
At Peninsula Design Drafting, we specialise in expert townhouse design in Melbourne. From feasibility studies to detailed documentation, we help you navigate the new rules and deliver projects that maximise returns, meet compliance, and create homes people want to live in.
