However, advocates for the property industry say the decision is confusing as the Barr government looks towards more urban infill, and disadvantages ordinary Canberrans trying to get ahead.

The ACT Legislative Assembly held a public hearing into Draft Variation 350, which changes the definition of "single dwelling block" in the Territory Plan, on Wednesday.

The variation - which has been in interim effect since May - came in response to problems arising from the redevelopment of certain blocks in Canberra's older suburbs.

Local residents had complained that blocks with a house and a granny flat were being redeveloped into multi-unit complexes that didn't fit with the rest of the neighbourhood.

These developments were allowed because the residential leases on these blocks do not limit the number of dwellings that can be built.

That omission is a hangover from the late 1960s and early 1970s, when two dwellings - one house and one small flat - were allowed to be built on these blocks, so long as the development looked like a single dwelling from the street.

The rationale was to improve the available housing stock while keeping the suburb's low-density character.

However, this has meant the current definition of "single dwelling block" in the Territory Plan does not apply to these blocks with the extra flat,  and some of the rules that govern the development of multi-unit housing don't apply either.

Those rules include restrictions on plot ratio, block size requirements, replacement dwellings, the number of dwellings in each building and restrictions on attics and basements.

The result has been redevelopments that are not sensitive to the neighbouring blocks and the character of the area, the government said.

The variation was designed as an interim measure to prevent further "unconstrained multi-unit redevelopment" occurring in the older established suburbs until a wider review of the ACT's housing options - dubbed the Housing Choices project - is finished.

That project is looking at changes that would encourage more people to subdivide blocks in those suburbs, in order to increase density and allow people to age in place.

A separate planning strategy released on Wednesday also prioritises urban infill over greenfield development, saying infill would be the source of 70 per cent of Canberra's new homes going forward.

Planning committee chair and Greens crossbencher Caroline Le Couteur said it was unclear how many of these blocks were out there, as they were random and scattered across Canberra's older suburbs and the leases were paper-based.

Labor backbencher Suzanne Orr questioned whether it was fair that these blocks were able to be developed by virtue of a decades-old planning quirk.

But in its submission to the inquiry, the Master Builders Association of the ACT said the draft variation had pre-empted the outcome of the Housing Choices project and resulted in "mixed messages" about the government's housing policies.

It said the variation could be considered a denial of natural justice and procedural fairness to applicants who were working to the old rules.

"Whilst we understand that the ACT government wished to avoid a situation where they announced their intended changes and then experienced a rush of development applications to avoid being covered by the new requirements, we believe that public and industry stakeholder consultation should have occurred prior to any variations being implemented," the association said.

"In our experience, the development applications that are lodged for the established suburbs are not for high-rise developments - which we consider would be excluded already under the Territory Plan requirements - but are typically for the development of medium-scale three to five townhouses.

"The developers in these instances are very unlikely to be national corporations and are usually everyday people in the ACT attempting to get ahead, whether it be to invest personally or perhaps establish a self-managed superannuation fund."

Planning consultant Nichelle Jackson told the inquiry she had five clients whose plans had been held up by the draft variation.

The association said those investors will have to go back to the drawing board or significantly alter their plans to comply with the new rule, at a cost.

The Master Builders Association's legal and compliance director Ashlee Berry told the inquiry there needed to be a transition period, where people who proved they'd spent money progressing a development application under the old rules should be considered under them.

However the Friends of Hawker Village group -  which began lobbying the government to change the rules four years ago, after five two-storey townhouses were approved on a former granny flat block - said that they wanted consistency about how planning rules applied across residential zones.

If a block had the same zoning and the same lease as the blocks around it, the same redevelopment rules should apply, representatives Robyn Coghlan and Christine Gingell said.

"It was never intended for these particular blocks in any way to be treated differently from the blocks on either side of them," Ms Coghlan said.

Planning Minister Mick Gentleman said the premise of the Master Builders Association's argument was incorrect and the Housing Choices project was about getting the right balance between meeting future demand and preserving the existing character of suburbs.

"We’re encouraging infill providing a mix of dwellings in the best locations and that balance with the character of that area," Mr Gentleman said.