Once a haven to keep parents and in-laws close, the humble granny flat is becoming a staple in the Australian housing market. Many states and territories now allow these 'secondary dwellings' to be rented out, and some have even relaxed planning regulations to make it easier to build them.
Additionally, an influx of companies offering portable granny flats or tiny homes has provided homeowners with plenty of choices when considering adding one to their property.
But do these simple structures designed for modest living actually add value? Whether they will increase a property's value depends largely on the property, its location, and the specifics of the granny flat itself.
Let's dive into the ins and outs of granny flats and explore when they might boost your home's worth - or fall short.
What is a granny flat?
A granny flat is generally known to be a small, self-contained living space located on the same block as a traditional home. It typically includes basic amenities such as a bathroom, living area, one or two bedrooms, and a kitchen or kitchenette.
In Australia, granny flats can come in various forms, including:
- A detached unit built separately from the main house
- A garage or basement conversion creating a separate dwelling
- A portable or prefabricated unit installed on the property
Granny flats usually share the same services (power, water, and/or gas) as the main residence. They also traditionally share amenities like the backyard, driveway, or pool area with the main dwelling, though homeowners often opt to divide these spaces when renting out the granny flat.
Will a granny flat add to the value of your property?
Whether or not a granny flat adds value to your property depends on several factors.
"When it comes to property value, we typically see an initial increase that aligns with the construction cost of the granny flat dollar-for-dollar," EzFeasy founder and accredited building designer Ryan Giorgiutti told Your Mortgage.
EzFeasy specialises in feasibility reports, helping homeowners determine whether projects like granny flats are viable for their property.
Giorgiutti also notes that some properties may be more suited to a value-adding granny flat than others.
Corner blocks offer great granny flat potential
"To maximise value, corner blocks are the best option for granny flats," he said.
"The main advantage is, once a dividing fence is installed between the existing home and the new granny flat, it can give the appearance of being a separate house on its own block, significantly boosting the perceived value of the property.
"These benefits are also similar for blocks that have access from a park or laneway."
Granny flats thrive in areas people want to live and holiday
And, of course, when contemplating building a granny flat to add value or rent out, it's worth considering the area in which your property is located.
"If you're looking to source a site to build a granny flat, location can be key," Giorgiutti said.
"Properties with granny flats that are located close to public transport or universities will attract a premium due to the convenience of not needing a car."
If your property is located in a holiday destination, you might also be able to offer it up as short-stay accommodation.
"What can sometimes be earned as weekly rent from long-stay accommodation can be made in just a night or weekend from short-stay accommodation during peak seasons," Giorgiutti said.
There are additional costs and requirements for those entering the short-stay market, but the expert notes that the income potential can make the extra hassle worthwhile.
What features can help a granny flat bolster a home's value?
If you're considering building a granny flat in an effort to boost your property's value, it's worth thinking about how you might counter the inevitable downsides of these structures. Their smaller stature, for instance.
"Granny flats are generally small in area so things like increased or raked ceiling heights will make a granny flat feel bigger than it is and add to its appeal from both a renter's and a buyer's perspective," Giorgiutti said.
"Parking spaces, especially in areas that aren't close to public transport, would also add value … and storage is another major one.
"A usable lock-up garage or neatly placed garden shed can provide a huge bang-for-buck."
When might a granny flat reduce the value of a property?
Without careful planning, the cost of building a granny flat might be more than the value it adds to a property. Worse, a poorly thought-out dwelling could even detract from the value of the main residence.
Giorgiutti warns against building a granny flat on a sloped property, where the new structure could cast a literal shadow over the main residence.
"Another key consideration is proximity to main roads," he said.
"Building a granny flat in such locations can be more complex and may reduce its overall liveability."
How much does it cost to build a granny flat?
Unfortunately, the answer to 'how much does it cost to build a granny flat?' is a lot like 'how long is a piece of string?'. Some DIY granny flat kits advertise prices of around $50,000, while a luxury construction could cost as much as a house - or more.
But it's not just the cost of building the dwelling that a person considering a granny flat should take into account. There's also the additional cost of permits, council fees, and planning costs to contemplate.
3 things to consider before investing in a granny flat
Here are a few major factors any homeowner should think about before setting their hearts on a granny flat.
1. How will you finance your granny flat build?
There are many ways to finance a granny flat build. Common ones include cash savings, personal loans, home equity (accessed through refinancing or a home loan top-up), and construction loans.
If you're adding a granny flat to an investment property or plan to rent it out, tapping into your equity or securing a construction loan might be a sensible option, as you may be eligible for certain tax deductions available to property investors. For example, if you rent out part or all of the property, you might be able to deduct some or all of the interest on your home loan from the taxable rental income you receive.
If that interests you, it could be worth reaching out to an independent tax professional for advice before embarking on your granny flat journey.
See also: Negative gearing calculator
2. Regulatory restrictions
Restrictions surrounding the construction of granny flats have eased in many parts of the country in recent years, but that doesn't necessarily mean you don't need to get approval from state, territory, and local government before you break ground.
"Not all properties are suitable for granny flats," Mr Giorgiutti, who is based in NSW, said.
"The property needs to meet the planning requirements of things like minimum lot size and even minimum frontage. It also can't be in higher risk categories when it comes to things like bushfire zones or flood areas."
Check in with your local authorities and state or territory resources in case your granny flat build might be deemed over before it's even begun.
3. A second dwelling can mean a smaller buyer pool
If you're building a granny flat purely to increase the value of your property, it's likely worth considering the impact the additional dwelling might have on your eventual buyer pool.
"Many prospective buyers looking for homes with large backyards or space for a pool often overlook properties with granny flats," Mr Giorgiutti warns.
"Premium prices are generally achieved when there's high demand from owner-occupiers, but for properties with a granny flat, that demand tends to shift to multigenerational households, which limits the buyer pool."
Buyers of properties with granny flats are often either investors or first home buyers, Mr Giorgiutti said. These groups are generally attracted to the rental yield potential of the granny flat, with the latter likely viewing it as a way to help offset their mortgage costs.
Image by Jed Owen on Unsplash
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