Granny flats becoming easier to build, opening gateway into property investment
Granny flats, Fonzie flats, secondary dwellings; whatever you want to call them, some councils are overhauling what were previously restrictive rules, making it easier now to build one.
By now most people realise the only way Australia is going to come anywhere close to fixing its housing crisis is to create more housing.
It sounds pretty simple, and it is – or it would be if we weren’t still struggling through the Covid-induced, material shortages, a lack of available tradespeople and the collapse of major construction companies.
Many builders were burned during Covid, forced to deliver on fixed-price contract projects that were no longer even profitable.
So, it’s little wonder then with so much uncertainty still hovering around the industry that very few developers are actually breaking ground on substantial residential projects at the moment.
It can take so long to build an apartment tower, no one can be certain what costs will be like and if they will skyrocket again halfway through. I actually think we are just about at the other side of those issues, but still some uncertainty remains.
So, what can we do to help supply the housing so desperately needed throughout Australia?
The answer to me is obvious. It is one that will enable ordinary Australian homeowners to add value to their own property, become property investors at an affordable price point and provide affordable housing relatively quickly – granny flats.
Granny flats, Fonzie flats, secondary dwellings, whatever you want to call them, some councils are overhauling what were previously restrictive rules, making it easier now to build one.
Building approvals dispensed
Earlier this year the Victorian state government announced it would allow granny flats to be built without an approval, as long as it is less than 60 square metres.
In September 2022, the Queensland Government announced a new initiative that provided a two- year embargo on the laws that prohibit secondary dwellings being built without approval.
New South Wales introduced a similar program all the way back in 2011.
These types of property are a very efficient way to provide affordable housing, quickly.
Construction is a lot faster than that of a standalone house, you don’t need to purchase land and, in some circumstances, you can purchase something pretty much ready-made to crane into place.
It is good news for tenants but also homeowners and investors. The rent can help offset mortgage repayments, earn an income in retirement, and provide increased returns for property investors.
It is only a matter of time before every state in Australia allows granny flats and secondary dwellings to be built as a right.
What this would mean is that you only need a building certifier to sign off on the house before it’s built and occupied, rather than having to go through the expensive, timely and uncertain process of a council approval.
One-bed housing growing fast
While the pandemic saw many Australians change the way they lived, seeking larger properties and wide-open spaces, the housing crisis has changed that point of view a little.
The chronic shortage of properties and skyrocketing rents, means many tenants are more than happy to consider renting a secondary dwelling or tiny house. They just want to find a home and some security.
One-bedroom housing is already the fastest growing housing type in Australia today, growing by a massive 412 per cent between 2016 and 2021, with the average household shrinking from 2.6 people per household to 2.5 people per household between during that period.
Granny flats can be a fairly economical way for homeowners to become property investors.
Just think if you are property investor already with multiple properties, you can increase those returns many times over.
Rich returns for granny flats
Let’s say you bought a property today for $600,000.
The interest repayments (principal and interest) on a 90 per cent loan would come to $747 per week with an interest rate of 6 per cent.
If you bought that $600,000 property and built a granny flat for $150,000, your total cost would be $750,000.
The repayments on the loan would then come to $934 per week.
While the repayments and upfront commitment are higher, you would also be getting an extra $420 per week in rent coming in from the second dwelling.
As a result, the mortgage costs you $514 each week once you factor in the rent.
If you make the same net repayments (i.e., interest plus some principal) each week you would pay the loan off 11 and a half years earlier.
At the same time, you would end up paying $185,000 less interest over the lifetime of the loan than if you’d just bought the house. And that’s before factoring in that the rent on the granny flat will grow over time.
Granted, you’d have to come up with an extra $15,000 as a deposit to build the granny flat, but it pales into insignificance compared to the benefits.