: Australian property – Granny flat push could leave unsuspecting homeowners vulnerable

So you’re thinking of ways that you can earn some extra rental income? For those not keen on sharing their home via Short Term Rental websites like Airbnb, granny flat or studio in the backyard sounds like a great solution. But be aware, they’re costly to build and in many parts of Australia are not legally able to be rented.

There is another way to earn some great cash flow from your property. Read my chat with’s Kiristen Craze below to find out how you can legally create a micro-apartment inside your home and rent it out.

Australian property: Granny flat push could leave unsuspecting homeowners vulnerable

By Kirsten Craze,, July 19, 2021.

Granny flats, backyard studios or self-contained apartments — whatever their name, real estate experts warn these added features are not a get-rich-quick scheme.

Tight rental markets have led some homeowners and investors to look for ways they can beef up property profits by turning one household into two.

According SQM Research data, Melbourne’s vacancy rate fell to 3.5 per cent in June, while in Sydney and Brisbane rates dropped to 2.8 and 1.3 per cent respectively.

Related – ‘It’s Time To Rethink The Granny Flat.’

Read More – ‘Homebuyers warned of the dangers of Afterpay.’

Granny Flat

In Adelaide, Canberra, Darwin and Hobart vacancies sit below 1 per cent.

Ian Ugarte, an advocate for affordable housing and co-founder of Small is the New Big, has urged homeowners to carefully consider their situation before building a granny flat.

“With the June vacancy for rentals hitting an all-time low, many homeowners who seek to capitalise on the lack of rentals, and at the same time boost their already stretched income, think the only way they can accommodate a paying tenant is to build a self-contained unit out the back in the form of a granny flat,” he said.

granny flat

“But they quickly discover it’s not just a costly exercise, they’re also not legally rentable in all states of Australia.”

Many councils across the country heavily regulate the building and addition of such rentals by setting complicated conditions that can be difficult to understand and expensive to meet.

Simon Pressley, buyer’s advocate and head of research at Propertyology, said many potential investors can be lured by the promise of one asset, but two incomes.

“It’s impeccable timing to talk about this. Due to the rental crisis there’ll be some well-meaning people who think it’s time to maximise their profits, get two assets for the price of one and just go into it blindly without thinking things through,” he said.

Granny flats are perfect for homeowners after multigenerational options at the one address, Mr Pressley said, or anyone needing an alternative work from home solution.

“Everyone should do whatever they want to, but if they’re making a decision purely as an investor, it would be wise to never build a granny flat. It doesn’t mean they won’t make money, but in my opinion what they are immediately doing is ensuring they’ll make less money than what they would have otherwise.”

“Try and predict where you might be 10 to 15 years down the track and what might happen if, for whatever reason, you want to sell that dwelling. The thing to consider now before buying a home with a granny flat, or building one, is that the resale market for that asset will be significantly diluted from what it would have been,” he explained.


Mr Pressley said that since approximately 70 per cent of buyers in most markets are owner occupiers, an asset that predominantly appeals to investors will attract a smaller buyer pool.

“Straight away you’ve created a reduced competition situation. Now, I’m not saying there won’t be any owner occupiers who want a home with a granny flat out the back, but they are few and far between,” he added.

“Owner occupiers are going to look at a conventional three- or four-bedroom house and think there’s a corner over there for a veggie patch, or room on the block to build an extension or put in a pool.” Mr Pressley said.

“Suddenly the granny flat becomes a hindrance to all those potential future buyers.”

Mr Ugarte agreed that for most homeowners it would generally be far simpler and more cost-effective to do a partial conversion of their existing home to create a “micro-apartment”.


“Instead of the unappealing prospect of opening up your entire home to a complete stranger, shared living can mean making a partial conversion of a room, like the garage, to create an entirely separate living zone – complete with its own bedroom, bathroom, living room and kitchenette for a tenant,” he said, adding that a partial renovation can be completed for a fraction of the cost in much less time.

“With more singles and couples looking for rental options across Australia, and fewer affordable options available to them than ever before, it’s time to rethink housing solutions and create rental options that can be implemented right now,” he said.

“It’s vital to preserve the relevant state-based policies and regulations that enable these sorts of partial renovations to ensure we can provide affordable housing opportunities wherever we can, all while easing mortgage stress for homeowners. It’s an obvious ‘win-win’ for all concerned,” Mr Ugarte said.