Granny flats: the new Aussie dream?
The humble granny flat can serve many purposes: a guest house, a retreat for teens, a living space for relatives, or even a source of rental income. It seems the granny flat may even have replaced the pool as the must-have back yard feature. A recent Housing Industry Association (HIA) survey showed that granny flat construction has taken off in recent years, with Aussie builders estimating they’ve seen a tenfold increase in demand.
If you’re considering adding a granny flat to your property, cost is likely at the front of your mind. The price of construction isn’t exactly getting lower, so how much will a granny flat set you back, and how much value will it realistically add to your home?
How much does a granny flat cost?
Granny flat costs can vary substantially depending on whether you choose to do it yourself or engage professionals.
DIY granny flat: $30,000+
You may be able to find one-bedroom granny flat kits to build yourself for less than $30,000. Even good old Bunnings offers one for just over $27,000, at the time of writing. However, the above estimate may not include all the costs involved, such as footings for the building, electrical wiring, and plumbing. If you plan on renting a granny flat out, it will need to comply with your local residential tenancy laws—if you plan on a DIY build, you may risk falling afoul of these.
Professionally built granny flat: $80,000 to $160,000+
According to trades website Hipages, a granny flat can cost between $80,000 and $160,000, depending on size and design. However, high-spec custom builds can easily cost over $200,000. Also, check what kind of contract you are signing, whether it’s a ‘cost-plus’ contract or a ‘fixed-price’ (‘lump sum’) contract. If you engage a local builder or a company that specialises in granny flats for your new build, think about getting several quotes, and make sure you’re comparing them based on the same inclusions.
Can you rent out a granny flat in Australia?
If you’re thinking about adding a granny flat or ‘secondary home’ for additional rental income, you may be wondering if you’re allowed to do so in your state or territory. At present, you’re allowed to rent out a granny flat in all parts of Australia, as long as you comply with relevant local planning and tenancy laws.
Because state governments and local councils may make fresh changes and updates to laws and regulations around building and utilising granny flats, it’s always important to check with the relevant authorities before building or renting out a granny flat on your property.
What rental income could you earn from a granny flat?
There’s no straightforward answer to this, as the return you could get from a granny flat will depend on its size and the location of your house. A newly built granny flat in a desirable inner-city suburb may command higher rent than one in an outer suburban backyard.
Three Birds Renovations suggests a range of $350 per week in rental income for a granny flat in a regional area, all the way up to $850 per week in an inner-city area of a capital like Sydney or Melbourne.
What are the benefits of a granny flat?
- Family accommodation: As the name implies, a granny flat can be a private space for an older relative (or even a teenager) to live while staying close to their family.
- Rental income: By renting your granny flat out to tenants as long- or short-term accommodation, you may earn extra income.
- Potential to boost property value: Whether you’re thinking of selling or accessing equity in your property, a granny flat could help increase its overall value.
What are the downsides of granny flats?
- Upfront costs: Adding a granny flat to your home can involve significant upfront cost, from the cost of parts and labour to fees, charges, and more.
- Council approval: Depending on the size of your property, how you plan to use the secondary dwelling, and more, you may need to apply with your local council or state government to arrange for a granny flat to be legally built.
- Reduced yard space: A secondary dwelling will take up space on your property.
- Tax implications: Renting out a granny flat comes with similar responsibilities and complications as owning any other investment property, including having to declare rental income on your taxes.
- Potential CGT if you sell: Raising the value of your property by adding a granny flat can mean having to pay more Capital Gains Tax (CGT) if you sell the property in the future, though there are some circumstances where CGT may not apply.
How can you finance a granny flat?
- Draw on your savings: If you have the funds available in a savings account or offset account, then self-funding a construction job means you can avoid taking out a loan.
- Use your redraw facility: If you’ve previously made extra repayments on your home loan, you may have the option to redraw them to pay for a granny flat.
- Refinance your home loan: If you have sufficient equity in your home, you may be able to top up your home loan or refinance the mortgage to borrow more to pay for a granny flat.
- Consider a personal loan: A secured or unsecured personal loan could help you finance a granny flat, but be aware that personal loan interest rates are generally higher than those on home loans.
How much space do you need for a granny flat?
According to Hipages, the rules for Queensland and Tasmania differ from one local council area to the next, so you’ll need to check on the rules where you live. However, other states and territories set out minimum land size requirements for a granny flat:
Minimum land size | |
|---|---|
NSW | 450m2 |
Victoria | 450m2 |
Western Australia | 450m2 |
Northern Territory | 500m2 |
South Australia | 600m2 |
ACT | 500m2 |
These states also set out a maximum size for a granny flat:
Maximum granny flat size | |
|---|---|
NSW | 60m2 |
Victoria | 60m2 |
Western Australia | 70m2 |
Northern Territory | 50m2 |
South Australia | 60m2 |
ACT | 90m2 |
Do I need council approval to build a granny flat?
This will depend on the rules and regulations in your local area. In many cases you will need to apply for council approval, but you may be able to skip this step if you meet certain criteria.
The rules around granny flats can vary significantly from one state and local council area to another, and there may be specific rules about the size and number of structures you can build and how much space is needed on the block to do so.
For this reason, it’s advisable to do your research carefully, get in touch with your local council, and find out exactly what permits you’ll need and what you’re allowed to build before embarking on any construction projects.
A professional builder in your area may also be able to answer your questions about the requirements to build a granny flat.
Will a granny flat increase the value of my home?
A granny flat that is well-constructed and compliant with council regulations has the potential to add value to a property. But they won’t appeal to every buyer. Not every household will need a granny flat, and some buyers may prefer more backyard space or a pool over a secondary dwelling.
Talking to local real estate agents could help give you a better idea of how a granny flat could affect your property’s value. If there’s strong demand for granny flats in your area, adding one to your property could help to enhance its value. But if there’s a granny flat oversupply, or if the area’s buyers typically have other priorities in mind, a granny flat may not be the best investment for you.
In some cases, the cost of building a granny flat could be higher than the value it adds to your property. Overcapitalising like this could put you at risk of ending up in more debt than you can comfortably afford to repay.
Do you need to provide extra parking for a granny flat?
It is not usually a requirement that a property owner provides additional parking spaces for a granny flat. However, if you’re able to add an extra parking space, this could help to attract tenants, add further value to the property, or simply allow your relative easier access.
