Australia has a housing problem. Are granny flats the solution to the crisis?

Like many other developed nations, Australia is grappling with a housing crisis . The combination of soaring rental rates, a growing number of single-occupant households, and increasing migration levels have resulted in a severe shortage of affordable housing options, creating a supply-demand imbalance.

But how bad is the problem? A recent report released by CoreLogic, Archistar, and Blackfort in October 2023, highlights a simple solution to this crisis - the development of granny flats.

The report points out that the country is expected to face a shortfall of 106,300 homes over the next five years. While the Australian government has set an ambitious target of 1.2 million well-placed homes to tackle the issue, proposed solutions such as build-to-rent developments and social & affordable housing are constrained by long lead times, regulatory, zoning issues, and industry shortages.

So, taking this into consideration, the report looked at residential blocks across Sydney, Melbourne, and Brisbane and suggests constructing granny flats as an immediate and cost-effective solution. These are self-contained one to two-bedroom dwellings of at least 60 square metres that can be pre manufactured and installed within existing town planning guidelines.

Where are the best Granny flat development opportunities?

Based on the analysis from Archistar, Blackfort, and CoreLogic, over 655,000 residential properties are suitable for a granny flat across Australia’s three largest capitals. Over a third of these sites are within 2km of a train or light rail station, and 17% have a hospital within the suburb boundary, indicating their potential to provide housing for essential workers in the healthcare sector.

Of the three cities analysed, Sydney has the most opportunities for granny flat developments at 242,081 properties. Looking more broadly at Sydney council areas, the Central Coast has the most opportunities for granny flats at 41,569 or 17.2% of potential sites followed by the Northern Beaches at 19,884 or 8.2%.

Melbourne was found to have 230,000 potential sites with Mornington Peninsula the largest opportunity in the broader Melbourne region at 23,870 sites or 10.4% of total sites. This was followed by Casey at 16,861 (7.4%). Brisbane was found to have about 185,000 suitable sites. In Greater Brisbane, the Brisbane LGA by far has the most opportunities at 184,660 or 40.5% of potential sites.

Granny flats an opportunity for investors?

For homeowners, adding a granny flat not only increases the value of their property but also provides an opportunity for additional rental income. For policymakers and the government, granny flats present an immediate and affordable way to meet the housing demand within existing town planning guidelines.

“Adding a granny flat accommodates extra living space for extended family, multi-generational households or rental purposes, thereby boosting a property's value and potentially creating extra income for rising living costs.” CoreLogic Research Director Tim Lawless said.

“CoreLogic figures show an extra two bedrooms, and an additional bathroom could add around 32% to the value of an existing dwelling. For a house worth $500,000, the addition of a granny flat has the potential to add approximately $160,000 to the value of the property.”

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