The humble granny flat is a making a renaissance across the suburbs of Australia.
With residential rents continuing to rise and the affordability issues for young people looking to purchase their first home, granny flats have become a popular solution.
The case for Granny Flats
What do we mean by the term granny flat? A granny flat is a self-contained one- or two-bedroom dwelling built on an existing residential property (same title). They can be attached to the existing house or stand-alone. Most are pre-manufactured and built under Complying Development legislation so separate council approval may not be required.
For property owners, there are a variety of reasons that they may choose to build.
Multi-generational households may treat these small homes as a suitable option to meet their wider family needs. The term Granny flat originated as they were often first built by families wanting a separate home for aging parents. However, they have been increasing been sought for older adult children still residing at home. This can also help to limit the strain on the ‘Bank of Mum & Dad’ which is often relied on to provide younger Australians a leg up in the property market.
The model also supports retirees, including those looking for additional income, or for vulnerable homeowners, who can build a granny flat for support / care workers to live in, providing around the clock assistance.
A well-designed granny flat can enhance the overall value of the property. Analysis from CoreLogic shows an extra two bedrooms and additional bathroom could add around 32% to the value of an existing dwelling.
Other homeowners may simply be looking to supplement their income. A granny flat could increase a household’s cash flow by hundreds of dollars a week, if not more.
Residential investors looking to improve their yield, can use a granny flat to provide an additional source of rental income to supplement or boost their overall return. CoreLogic figures show a two-bedroom self-contained apartment on an existing investment property could add an additional 22% in rent each week, contributing more than one percentage point to the overall gross yield of the property.
On a macro-economic level, Granny flats can positively contribute to the current housing crises by providing affordable residence in a relatively quick manner. A recent study from CoreLogic identified more than 655,000 residential properties suitable for a granny flat across Sydney, Melbourne and Brisbane. In Sydney, the study identified some 242,000 properties suitable for developing a granny flat. Of these sites, more than a third where near a rail station.
For homeowners, the addition of a second self-contained dwelling can provide an opportunity for additional accommodation for family members or provide rental income. If you are considering a granny flat for your property, I recommend that you speak to local real agents to understand the impact on values and rent to see if the additional cost to build one is worthwhile.