Your guide to granny flats

18 May 2024

Image: Dean Roller of DIY Granny Flat

  • Due to increased cost of living and a shortage of rental properties, granny flats are gaining popularity as affordable housing or a source of passive income.
  • Recent legislative changes across various states have made it simpler for homeowners to construct and rent out granny flats to non-family members.
  • According to Drew Healey, CommBank’s manager of retail lending, homeowners can finance granny-flat construction using home equity, and while immediate property value increases may not equal the building costs, they can offer long-term investment benefits.

If you search online for granny flats you might be surprised to see the number of companies offering to sell or build you one. Elevated house prices, a shortage of rental properties and the increased cost of living are all helping the growth of the granny-flat market. While the small dwellings have traditionally been built to extend family living space or accommodate ageing parents, their potential as an affordable home to adult children or to provide a passive income is boosting their popularity. 

A granny flat to help pay the mortgage

When Dean Roller was looking to move to the New South Wales Central Coast a few years ago, he knew he wanted a garden big enough for 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.”

When people kept asking Dean for advice on building a granny flat, he started a blog and eventually launched his own business, DIY Granny Flat. In that time, he’s seen some changes in the market. “More customers are coming to us because their kids can’t afford rent or to save for a house deposit and they see a granny flat in their garden as a good option.”

Planning made easier

The potential for granny flats to impact the property landscape has prompted state governments to amend laws around planning, building, and renting. It’s getting easier to put a granny flat in your garden. Before 2023, 60 to 70 % of granny flats were built in NSW due to more lenient renting and building rules.* The state government introduced a policy in 2009 to simplify the process and other states followed suit. Between September 2022 and January 2024, state governments for Queensland, South Australia, Western Australia and Victoria changed laws to let homeowners rent granny flats to anyone, not just family. To varying degrees, they’ve also eased planning and building rules to simplify the process.

“Legislation differs between states but also councils so it’s important to confirm them upfront.”

He notes that your granny flat will need to fulfil other regulations too, including how big it can be and where it’s positioned on your block.

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. 

The granny flat Dean built in his backyard

Maintaining privacy

Not everyone is cut out to have someone living in their backyard but if they are, privacy is often top priority for both parties. “Our granny flat is 15 metres from our home, and we built a fenced pathway to make it separate,” says Dean.

“We don’t feel like we’re living with other people and, in fact, rarely see each other.”

He continues, “The design and positioning are also important as you don’t want to be staring at each other.”

Stephanie Sinclair, who rents a granny flat on Queensland’s Sunshine Coast, says, “I think it’s important to respect people’s privacy and boundaries and negotiate this upfront as you may not always find yourself 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 someone whenever I wanted to do washing.”

Types of granny flats and the costs involved

There are generally three key costs involved in building your granny flat: design, approval, materials and labour, which vary depending on the type of granny flat you choose.

Built on site

Much like traditional builds, these take anything from four to six months to build.

“Most commonly you sign a contract with a builder who factors in a profit margin of about 25%.”

“A 60-square metre, two-bedroom granny flat is generally above $180,000. If you get an owner-builder permit that allows you to legally arrange trades yourself, costs are closer to $120,000-$140,000,” Says Dean.


Prefabs and modular units are built off site and can be significantly cheaper. Many companies make full turnkey solutions that are built or installed in a matter of hours. However, you need to do your research as they may not meet your council’s local habitability or rental regulations.

Garage conversions

“Garages have a different building classification that’s not for habitable use,” says Dean. “They may be too close to your boundary or have ceilings that are too low, but some can very economically be converted to comply with regulations. There are often hurdles to get over but in many cases it’s worth it.”

Financing your granny flat

Drew Healey, CommBank manager of retail lending in WA, shares some finance tips and insights:

  • Deposit required: Depending on the situation, you can borrow up to 100%of build costs and use equity from your owner-occupied home.
  • Finance approval: As long as you can satisfy CommBank’s lending criteria and all regulations are met, the bank has quick approval times to assist with a granny-flat build.
  • Portfolio boost: Granny flats can be a successful investment. They allow you to start or add to your investments without borrowing a large amount of money.
  • Value add: Keep in mind that cost doesn’t always equal value when you add a granny flat to your property. A granny flat that cost $200,000 to build may not add the same amount to the property value immediately.
  • Shop around: “When you build a granny flat, explore how to save money on the build and shop around. And ensure you’re not overcharged because of your postcode,” says Dean.

Visit the CommBank Renovating a property hub to find out more.


HIA Economics, NSW Planning, VBA, SA Government, ABS 8731.0

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Things you should know

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