Without more detailed information from the OP, I’ll take a guess and say that the parking spaces are not being replaced by cages, rather that cages are being allowed to be installed in parts of existing parking spaces or beside them. Eg over bonnet storage cages.
2.6m seems to be the allowed width even for free standing garages (with walls either side) these days. So if a car space is 2.6m wide it should be enough.
As for storage cages being a fire hazard, I very much doubt it. Storage cages in car parks exist all over the country and have for as long as I can remember. I’d like to see the law/rule that specifically states they are a fire hazard.
But an OC (at least in VIC) can make rules on how car spaces are used and could certainly prohibit storage cages – despite the fact that a car space is usually lot property.