NSW at the forefront of a granny flat revival

Granny flat building is on the rise according to data from the NSW state planning department, which revealed that development applications for sub dwellings grew 20% to 3,640 between 2014 to 2015.

In 2009, the NSW government introduced the Affordable Rental Housing legislation to make it easier for those owning property to build secondary dwellings on their land. It meant that building applications for granny flats could be accepted within 10 days.

Senior economist Shane Garrett of the Housing Industry Association told AAP that building a granny flat can add value to a home.

"There are of course situations where it does what it says and the granny flat is actually used to house granny,” Garrett said.

"For others, it's a way of generating additional rent on their home."

Mozo’s home loan repayment calculator shows building a granny flat can be a cheaper alternative to purchasing an investment property.

For instance, a homeowner that takes out a loan of $100k to fund the build of a granny flat, with a 5% interest rate, will pay $135 in repayments each week and $75,377 in interest over a 25 year period.

By comparison, purchasing an investment property worth $300,000 will be significantly more expensive, because with the same scenario, the homeowner will pay $404 in weekly repayments and $226,131 in interest over the life of the loan.

Additionally, when you consider granny flats can bring in an income of between $200 and $600 per week, according to Domain, the homeowner's rental yields should more than cover the cost of the $135 weekly repayments.

Tempted to add a granny flat to your backyard? Head to Mozo’s home loans hub and compare interest rates now.