“Victoria is the latest state to announce sweeping changes to restrictive planning codes – no permit needed to build a granny flat or second small home of less than 60 sq m – in a bid to ease housing shortages, boost income and improve the ability to provide intergenerational living,” writes Duncan Hughes in the Financial Review. 

Recently, there has been a wealth of real estate news to come out of Victoria, including the relaxation of the state's building regulations around granny flats, which have understandably gained in popularity, with good rental properties as rare as hen’s teeth. 

Times are changing, and gone are the days of sweltering in your dad's Asbestos shed over Christmas because your Nana got your room. Many granny flats are now stylish, small homes that renters view as a more preferable (and often cheaper) alternative to units.

Victoria's relaxation of its regulations around granny flats is a small step towards relieving the housing crisis 

Granny flats have long been seen as a cost-effective way for property owners to increase the size of their floor plans, providing extra space for teenagers, "boomerang kids", elderly parents and house guests. Furthermore, their versatility means they can be used in a range of diverse ways such as a home office, studio, guest accommodation or even parental retreat (yes, please!).

However, if you are considering adding a granny flat to your property, it is wise to look at the big picture first and weigh up the cost of the project with the value you expect to gain from it in the long term. Not moving home will obviously save you money, and there is the potential rental return on the additional accommodation (and the fact that in NSW, for example, they can be negatively geared), but building a granny flat in today's cost-of-living crisis may not be as cheap as you think.

In the current property climate, the demand for granny flats is huge 

Also, although Victoria may have relaxed some of its red tape, there are still certain stipulations around granny flats in relation to their purpose, so do your research carefully. For example, a DPU or Dependent Person's unit can only be rented to someone dependent on the person in the main dwelling, and the homeowner may only be able to rent it out if it is classified as a secondary dwelling.

Fortunately, in NSW, there are fewer regulations in terms of renting the space out, which is why granny flats have been offering a handy additional income stream to homeowners for some time.

Are they a good investment?

Some property specialists promise rental yields of up to 15% and according to Service NSW, you can expect to pay anywhere from $100 to $1000 per week for a granny flat.

But with any construction, there is a certain amount of red tape to navigate and certain regulations and compliance must still be met and these vary from state to state. Furthermore, with the cost of living crisis, the prices of construction materials and labour have escalated, so careful planning is essential. 

In NSW, “All complying residential home-owners can build a granny flat on their property without the traditional council approval process...To be eligible for the “no council approval” process, there are certain site and design requirements that need to be met,” says Backyard Grannys. Furthermore, most of these requirements relate to boundaries between properties and trees and the planned size of the accommodation – no more than 60 sqm in NSW - so if you own a decent-sized plot, there shouldn’t be an issue.

What do they cost?

Again, according to Service NSW, “Granny flat costs can vary significantly, anywhere from $80,000 to $200,000+ to build depending on the size, materials, location and more.” The lower end of that range will get you a basic studio without plumbing and wiring and the top end will get you a self-contained flat. 

Of course, the design you choose will impact your budget. Most architects and interior designers would agree that your secondary dwelling should complement the style of your home, and our post on the 7 Core Areas of the Best Outdoor Living Areas confirms this. The best outdoor area designs look like they've come together organically.

DIY Granny Flat suggests a slightly lower price range between $50,000 and $120,000 depending on the size and specification, land condition and access, and finish, with a 3-bedder exceeding that estimate and a studio costing – possibly - a little less. They also point out that electrical and plumbing works are usually not included in initial quotes, so don't forget to factor those costs and the costs to landscape into your budget.

Is there a risk of overcapitalising on your property?

Michael Yardney worries about property owners overcapitalising. His concern is that a granny flat doesn’t always add sufficient value to the property and that many people forget about the tax they must pay on rental income. 

But there are many reasons homeowners decide to build a granny flat, most of which have nothing to do with extra income, and what makes "a good investment" will vary from homeowner to homeowner. We know from our post on The Top 5 Unchangeable, Must-Haves for Home Buyers that the floor plan is important to them, so the true value of a granny flat is highly subjective. For those buyers who need space, it could clinch the deal, for those who prefer a large garden, it could put them off.

Thinking about buying or selling? 

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