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.”

Looking for a home loan or considering refinancing? Check out some of the providers below and compare today. 

Home loan comparisons on Mozo

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Last updated 19 June 2024 Important disclosures and comparison rate warning*
  • Unloan Variable

    • Investment
    • LVR <80%
    Interest rate
    6.29 % p.a.
    Variable
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,092
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.36 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    No annual or application fees. Competitive rate tiers based on your LVR as well as interest only and split repayment options. Fast application and turnaround process. Secure online application.

  • The Better Home Loan Special Offer

    • Investment
    • Principal & Interest
    • LVR <80%
    Interest rate
    6.19 % p.a.
    Variable
    Comparison rate
    6.19 % p.a.
    Initial monthly repayment
    $3,059
    Go to site

    Reap the benefits of a variable rate investor home loan with a bunch of features from Police Credit Union. Make extra repayments at any time without penalty. No monthly, annual or upfront fees. Free online redraw. 100% offset account available (T&Cs apply). Minimum 20% deposit. Qualifying criteria applies. Minimum loan amount is 200K. For new customers only. Mozo Experts Choice Home Lender Credit Union of the Year 2023.

  • Unloan Variable

    • Investment
    • LVR <80%
    Interest rate
    6.29 % p.a.
    Variable
    Comparison rate
    6.20 % p.a.
    Initial monthly repayment
    $3,092
    Go to site

    Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for investors. No application or banking fees. No monthly account keeping or early exit fees. Apply online in minutes.

  • Basic Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.36 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    No annual or application fees. Competitive rate tiers based on your LVR as well as interest only and split repayment options. Fast application and turnaround process. Secure online application.

  • Offset Home Loan

    • Investment
    • LVR<60%
    • Principal & Interest
    Interest rate
    6.34 % p.a.
    Variable
    Comparison rate
    6.59 % p.a.
    Initial monthly repayment
    $3,108
    Go to site

    Up to 10 offsets. Competitive rate tiers and interest only repayment option. No application fee. Split loan option. Fast, secure online application. $248 annual fee.

  • Basic Home Loan

    • Fixed
    • Investment
    • Principal & Interest
    • LVR <70%
    Interest rate
    6.55 % p.a.
    Fixed 3 years
    Comparison rate
    6.42 % p.a.
    Initial monthly repayment
    $3,177
    Go to site

    Lock in repayments from 1 to 5 years. Competitive rate tiers depending on your LVR. No application or annual fee. Fast, secure online application.

  • SMSF Home Loan

    • LVR <70%
    Interest rate
    6.99 % p.a.
    Variable
    Comparison rate
    7.00 % p.a.
    Initial monthly repayment
    $3,323
    Go to site

    Enjoy a competitive rate on your SMSF home loan with Loans.com.au. Available for refinancers only. No application fee and no settlement fee. No monthly, annual or ongoing fees. Unlimited extra repayments. Online access via Smart Money App. 30% deposit required.

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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