Why more homeowners are building granny flats
With household budgets under pressure and buying a home still a stretch for many, a granny flat could bring in rental income or provide a separate home for family, opening up possibilities without having to buy another block of land.
Builders are seeing the potential too. A Housing Industry Association survey last year found respondents were anticipating a 10-fold increase in the number of granny flats they would build in 2026 compared with 2022.
But turning a backyard into another home takes some planning. Here’s what to consider when it comes to the rules, building costs and finance.
With granny flats surging in popularity, there have been calls for Australia to introduce a national framework for secondary dwellings and granny flats. But at present, the rules are inconsistent across states and local governments.
In recent times, some states have loosened the rules to make it easier to build granny flats. In 2009, for example, the NSW Government passed legislation that standardised rules for approving granny flats and bypassed council processes.
Victoria introduced planning exemptions for small second dwellings under 60 square metres in 2023, updated residential standards for lots under 300 square metres in 2025, and increased the maximum floor area for small second dwellings to 80 square metres on 15 October 2026.
Western Australia’s 2024 reforms removed the requirement to get planning approval for compliant granny flats up to 70 square metres, and scrapped the previous minimum lot size requirement of 350 square metres. Further reforms are considering lifting the maximum floor space to 90 square metres. In March 2026, the Tasmanian Government announced it would boost the allowable size of granny flats from 60 to 90 square metres.
Restrictions on who can live in a granny flat have changed too. Queensland, South Australia, Western Australia and Victoria allow granny flats to be rented to people outside the family, subject to applicable approval and tenancy requirements.
Before settling on a design, check with your local council about what’s permitted on your block and which approvals you’ll need. A planning exemption doesn’t mean there are no building requirements to meet.
There’s more than one way to build a granny flat. You might choose a custom build, a kit home or a modular dwelling manufactured off-site and installed on your property. The approach you choose, along with the size, finishes and site conditions, will influence the cost.
Hipages estimates granny flat construction costs at between $80,000 and $160,000, while high-spec custom builds can exceed $200,000. These figures are a starting guide, rather than a budget for your particular project.
When comparing quotes, look beyond the advertised price. Check whether site preparation, foundations, approvals and connections to water, electricity and sewerage are included. A low kit price can look appealing, but it’s the cost of the finished, ready-to-live-in home that matters.
When it comes to financing your granny flat build, lenders differ on their approach. Some may want to know your expected rental return, and certain lenders are cautious about modular or kit builds.
There are a few different ways to finance a granny flat, including using the equity in your existing home, taking out a construction loan, or using a personal loan for simple designs. What suits you will depend on your financial circumstances and your lender’s criteria.
There may also be help available for some first-home buyers. In Queensland, eligible applicants may be able to use the First Home Owner Grant to purchase a detached dwelling (such as a granny flat) built on a relative’s land, provided certain criteria are met. Chat to us about whether you’re eligible.
If you’re considering building a granny flat, chat to us about your finance requirements before signing with a builder. Get in touch and let’s get your granny flat dream off the ground.
