Searching online for granny flats reveals a surprising number of companies eager to sell or build these compact dwellings. The rising popularity of granny flats can be attributed to skyrocketing house prices, a shortage of rental properties, and the increasing cost of living. Traditionally used to extend family living space or accommodate aging parents, these small homes are now also seen as affordable housing options for adult children and a means to generate passive income, further driving their demand.
A granny flat to help pay the mortgage
When Dean Roller, owner of DIY Granny Flat, decided to move to the New South Wales Central Coast a few years ago, he sought a property with a garden large enough to accommodate a granny flat to supplement his young family’s income. In 2018, he built one for $110,000.
“The decision was solely to help us pay the mortgage as we didn’t want financial stress over our heads. It’s not unusual to get $500-600 per week in rent so it can be financially viable.”
As people increasingly sought his advice on building granny flats, Dean started a blog and eventually launched his business, DIY Granny Flat. Since then, he has observed changes in the market. “More customers are coming to us because their kids can’t afford rent or save for a house deposit, and they see a granny flat in their garden as a good option,” he notes.
Planning made easier
The potential impact of granny flats on the property landscape has led state governments to revise laws related to planning, building, and renting, making it easier to add a granny flat to your property. Prior to 2023, 60 to 70% of granny flats were constructed in NSW due to more relaxed renting and building regulations. A policy introduced by the NSW government in 2009 streamlined the process, and other states have since followed suit. Between September 2022 and January 2024, Queensland, South Australia, Western Australia, and Victoria all amended laws to allow homeowners to rent granny flats to anyone, not just family members. They also eased planning and building regulations to varying degrees to facilitate the process.
“Legislation differs between states but also councils so it’s important to confirm them upfront.”
He also points out that your granny flat must comply with additional regulations, including size and placement on your property.
It’s very important to check your council’s rules on granny flats – size, conditions for privacy and other guidelines – as different councils and states have different regulations.
Maintaining privacy
Not everyone is suited to having someone live in their backyard, but for those who are, maintaining privacy is often a top priority for both parties. “Our granny flat is 15 metres from our home, and we built a fenced pathway to keep it separate,” says Dean. “We don’t feel like we’re living with other people and, in fact, rarely see each other.” He adds, “The design and positioning are crucial because you don’t want to be constantly in each other’s view.”
Stephanie Sinclair, who rents a granny flat on Queensland’s Sunshine Coast, agrees, “It’s important to respect people’s privacy and boundaries and to negotiate this upfront, as you might not always be completely ‘separate’. When the washing machine broke, the owner didn’t replace it, so I had to use hers. I felt uncomfortable having to ask whenever I wanted to do laundry.”
Types of granny flats and the costs involved
Building a granny flat typically involves three main costs: design, approval, and materials and labor, which vary based on the type of granny flat you choose.
Built on Site Similar to traditional constructions, these projects can take four to six months to complete. “Most commonly, you sign a contract with a builder who includes a profit margin of about 25%,” Dean explains. “A 60-square metre, two-bedroom granny flat generally costs over $180,000. If you obtain an owner-builder permit, which allows you to legally arrange trades yourself, costs can be closer to $120,000-$140,000.”
Prefabricated Prefabricated and modular units are constructed off-site and can be significantly cheaper. Many companies offer turnkey solutions that can be built or installed within hours. However, thorough research is essential as these units may not meet your council’s local habitability or rental regulations.
Garage Conversions “Garages have a different building classification that isn’t meant for habitable use,” Dean notes. “They may be too close to your boundary or have ceilings that are too low, but some can be converted economically to comply with regulations. There are often hurdles to overcome, but in many cases, it’s worth it.”
Financing your granny flat
Drew Healey, CommBank’s manager of retail lending in WA, offers finance tips and insights:
- Deposit Required: You can potentially borrow up to 100% of the build costs, using equity from your owner-occupied home.
- Finance Approval: As long as you meet CommBank’s lending criteria and all regulations, the bank offers quick approval times for granny flat construction.
- Portfolio Boost: Granny flats can be a profitable investment, allowing you to start or expand your investment portfolio without needing a substantial loan.
- Value Add: The cost of building a granny flat doesn’t always translate to an equivalent increase in property value. For instance, a $200,000 granny flat might not immediately add the same amount to your property’s value.
- Shop Around: “When building a granny flat, look for ways to save money and compare options. Ensure you’re not overcharged due to your location,” advises Dean.
Visit the CommBank Renovating a property hub to find out more.
source: CommBank
