Granny flats have boomed in popularity since their humble beginnings as a place to house older relatives. These days, granny flats are the key to a much wider range of financial and lifestyle benefits; such as increased rental income, independence for young adults and teens, home office space, or even guest rooms for visitors. So the obvious next question is; how many granny flats can I have?
In Australia, the legislation allows only one granny flat per property. There is some slight variation between the states in regards to qualifying standards for building a sole granny flat. One thing is for sure though, there is never any leeway for two granny flats; no matter how much extra space you have on your property!
There is so much more to understand about granny flats before you can make an informed decision about adding one to your home. We have compiled some information below to help you in your quest to learn all about granny flats!
So what exactly is a granny flat?
A granny flat can also be called a secondary dwelling, it is basically a flat at the back of the house that acts as a sort of sub house to your main property. If it is close in size to your main property it is certainly not a granny flat!
To be considered a granny flat the additional dwelling must be self-contained. This means that someone should be able to live there without having to come into the main house for anything at all. If the tenant in your sub dwelling would have to come to the main house to use the bathroom, then it is not a granny flat.
To be considered self-contained a granny flat requires :
- A separate entrance
- A bathroom
- A kitchen
- A bedroom
- A laundry
- A living area
Attached or free standing
A granny flat can be either attached to the main residence or constructed as a free-standing unit. The option you choose really depends on preference. Here are a few points to consider:
- A freestanding granny flat will offer more privacy.
- An attached granny flat is usually more expensive to build.
- It may be hard to integrate an attached granny flat into the original design of the property.
- You will need to check council regulations to determine your options.
- An attached granny flat may block views.
A small sub-dwelling
Your eligibility for adding on a granny flat is dependent on your land complying with dimension regulations; the actual size of the land required for a granny flat varies by state and sometimes local councils have different rules. In NSW your property should be a minimum of 450sqm, however, in special circumstances, there could be an exception made. The floor area of the granny flat cannot exceed 60sqm or 10% of the floor area of the main residence (whichever is higher). The regulation for granny flats in NSW is outlined in the State Environmental Planning Policy (Affordable Rental Housing) 2009.
The owner cannot differ
A granny flat is owned by the same person who holds the title to the main residence. If you would like two properties on the same block of land with two different owners then you will need to split the title before proceeding. A granny flat can be lived in by a family member but the ownership never changes hands.
Do you need council approval for a granny flat?
For the majority of cases, you will need approval from your local council to build a granny flat on your property. In certain cases (when requirements are fulfilled) you won’t need a submit a full development application. Though these rules do vary by state and also among local councils so it is always best to research the regulations in your area. Below is a brief summary of the rules across the different states and territories:
NSW: In New South Wales the approval to build a granny flat can be relatively quick and easy if the complying development boxes are ticked. The intention of use for the granny flat doesn’t make a difference. If the complying requirements are not met homeowners can still submit a full development application with their local council.
QLD: In Queensland, you don’t need approval from the council for your granny flat if you intend to house a family member there (subject to certain requirements). If you intend to rent your granny flat to someone outside of your household; you will need to submit a development application. This is not a possibility for all areas of Queensland, it is best to check regulations on a case by case basis.
VIC: In the state of Victoria things are a little different; property owners can only build a removable granny flat that is to be used for a family member, also known as a Dependant Persons Unit. Local councils have varying planning requirements for these dwelling, however on aspect remains the same; DPUs cannot be rented out to external parties.
WA: In Western Australia, new laws allow granny flats to be rented to tenants outside your household. All new build granny flats need council approval and if you buy a house with an existing granny flat you may need to seek approval before renting it out.
SA: Granny flat builds in South Australia are approved on a case by case basis and through the local council. Like in Victoria, granny flats in South Australia are for the purpose of housing dependents or family members only; they cannot be rented out to the general public.
NT, TAS & ACT: In the Northern Territory, Tasmania and the Australian Capital Territory, granny flat developments are approved by the local councils on a case by case basis. There isn’t a one size fits all. Once approved granny flats can be rented out to the general public.
How much does it cost to build a granny flat?
An addition of a granny flat to your home can require you to fork out a significant sum of cash for the build! Not only that, but there are also planning and application costs, tax and social benefit implications, and after all your hard work, the increase in the value of the property is not always aligned with the actual investment.
In Australia, the average cost of building a granny flat is between $50,000 – $100,000.
You could buy a very cheap and pre-built flat for as low as $10,000 but it may not pass the granny flat regulations in many areas (or be very durable). In any case, most people are looking for something a little more customised and consider the cost incurred to be an investment rather than an expense.
Adding a secondary dwelling to your home, that is also legal, can be expensive!
Granny flats cannot be sold separately
Another point to make note of about granny flats is that they cannot be sold in a separate transaction.
For example, a son decides to build a granny flat on his parents’ property. First of all, it is not possible for the son to be the legal owner of the granny flat; his parents would maintain the legal ownership of both the main house and granny flat. Five years later the son decides that he would like to sell off his granny flat so that he can move to another city. Unfortunately, he is unable to sell his granny flat.
The only way he will be able to make back his investment is if his parents sell the entire property; he will then receive an increase in value associated with the granny flat. Dependent on the new buyer’s tastes, this increase in value may or may not reflect the son’s initial investment.
Tax implications of a granny flat
If you intend to use your granny flat as an additional source of revenue then you will need to consider the tax implications in your planning.
First, let’s look at capital gains tax. If there is a family member living in the granny flat, then your whole residence will continue to be classified as the main residence for tax purposes. However, if you rent the granny flat out to the general public, this portion of your house is no longer the main residence and you will be liable to pay capital gains tax on any increase in value.
The good news for investors is; if you are receiving income, any expenses that arise from the running and maintenance of the flat can be claimed. Depreciation expenses can also be quite significant. Your initial construction investment can be deducted according to a reasonable schedule agreed with your accountant.
If your granny flat is negatively geared (i.e. you took out a loan to cover the costs) then you will also be able to claim your loan interest repayments as a deduction!
Impact on social security payments
Retired persons who are contemplating renting out a granny flat on their own property should also consider the effect of the extra income on their existing benefits. Retirees who live in a granny flat may receive rent allowance under certain conditions.
Family occupants are allocated an assumed lifetime interest in the property and this is usually calculated based on the amount contributed to the construction and maintenance of the flat. If that ‘interest’ is less than $200,000 the retiree is considered a non-homeowner for social security.
Can I make extra income from a granny flat? You can make income from your granny flat in many areas of Australia. Exceptions are those who reside in Victoria, South Australia and some parts of Queensland.
Can you build a granny flat on vacant land? No, you can only build a granny flat on land that already has a main residence. This is an important rule to remember if you are thinking of a demolish/rebuild. If you intend to build a granny flat to live in while the bigger house is in progress, you should build the granny flat before the main residence demolition.
Is a granny flat a dual occupancy? No, a granny flat is not a dual occupancy. Dual occupancy allows you to have two residences on one title; you could sell each residence separately if so desired. A granny flat is simply a sub residence attached the main residence, and cannot be sold separately.
Make the most of your granny flat!
If you have just one granny flat included with your main residence, consider yourself lucky. If it is compliant you have a wide range of possibilities open to you, even the option to just use it as extra living space. If you want more than one granny flat, unfortunately, you will need to choose another path to go down. One granny flat only is the rule Australia wide! Anything more would require you to start subdividing your land.