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Sydney home owners are turning to granny flats to help make extra cash and pay off their mortgages – and some are so impressed with the small homes’ designs they’re choosing to live in them and rent out the main house instead.
“Granny flat” was the second most common search keyword in Sydney by visitors to domain.com.au in 2024, only topped by “pool”.
Baahouse director Claus Ejlertsen said a client in Sydney’s Avalon intended to rent out the granny flat but after seeing the final product, changed tactics.
“They thought the granny flat was nicer and decided to rent out the main house instead,” he said.
Ejlertsen said some clients are surprised by how spacious a granny flat can be. Under NSW legislation, the maximum internal space cannot exceed 60 square metres.
“It’s about proportions, size and scale. Some people think 60 square metres is too small, but when you add a deck and high ceilings, the space becomes bigger than the existing house,” he said.
Ejlertsen said clients could easily spend $500,000 on a granny flat with the interior finishes and deck. “In Sydney, we’re finding anywhere between $350,000 to $500,000 is the range.”
Granny Flat Solutions director Wally Gebrael said granny flats are popular on the Central Coast with block size and affordability, and many are choosing to live in them.
“So many clients think they want to rent out the granny flat or give it to a family member, but once it’s built they realise how nice it is, how much space there is, and opt to downsize,” he said.
Gebrael said the average cost when he started the business in 2011 was around $100,000 to $160,000, but nowadays, $200,000 is common due to the surge in construction costs.
Others are buying pre-existing homes that already have a granny flat installed.
Rohan Borawake and his wife Purva recently purchased a new home in Enfield, with the appeal down to its granny flat.
The couple intend to rent it out to students due to the area’s school zone and bus connectivity.
Their property search included Homebush, Strathfield, Burwood and Croydon, and homes on more than 500 square metres, should they have needed council approval to build a granny flat.
“There are many financial benefits given high interest rates, and it’s a way to pay off your mortgage,” Rohan said.
The couple were also motivated to purchase a granny flat after a burglary at their current home, as they liked the idea of having someone around.
University of Sydney urban and regional planning professor Nicole Gurran said granny flats have become vital by default, with the lack of adequate funding for social housing and affordable rentals.
“They offer flexible housing options, especially for extended families. We don’t have much choice for lower-income and now even middle-income earners,” she said.
Housing targets are not being met. The Minns Labor government committed to building 75,000 homes a year for the next five years. The total number of houses and units approved in NSW in the 12 months to November 2024 was 42,109.
Data from Archistar, Blackfort and CoreLogic showed 18.76 per cent of all Greater Sydney properties have the potential to house a granny flat. This is a percentage of the total sites with residential zoning, excluding strata sites.
Gurran said the reason granny flats are so popular in NSW is government legislation. Under the State Environmental Planning Policy 2009, there are now standardised rules for approving granny flats that bypass council processes.
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Home owners don’t need council approval to construct on their residential property, but the design must adhere to certain requirements. They cannot exceed a maximum internal space of 60 square metres and must be on a minimum lot area of 450 square metres, among other criteria.
“It’s a relatively low-cost way of building new homes, and you’re using existing land,” Gurran said.
Gurran said there’s no evidence granny flats are affordable rentals.
“It just reflects that our rental market is so constrained, but it also shows that even when you get increased rental supply, it’s not enough in such expensive cities like Sydney.”
Blaze Real Estate director Blaz Dejanovic said many properties in Bossley Park have a granny flat with the potential for a high rental return.
“It might cost about $200,000 to build, but owners can rent these out for around $550 a week. If they rent out the main house instead, it could give them up to $800 a week, so it might make sense to move into the granny flat to help pay off the mortgage,” he said.
Dejanovic thought the best granny flats for rental return are street-facing with a garage as they look like a freestanding house, followed by those behind the main house, and then those attached.