Granny flats are an increasingly popular housing option as they allow Australians to downsize closer to their family and friends at an affordable price point.

Improvements in granny flat design, along with new regulation to make it easier to build and fund these homes, means that more families are looking at granny flats to deliver an housing solution for parents or relatives. 

When considering a granny flat, you will need to investigate planning guidelines for your State or council area and assess any financial considerations (especially around capital gains tax and pension issues).

You should also consider what your future needs might be, and ensure you have the right to stay there as long as you need to.  

Fortunately, we’ve some useful information about how you can tackle these tasks - so read on!

Where can I build a granny flat?

Before getting too excited about the design of your new granny flat, it is first worth understanding what sort of planning approvals you need.

A local granny flat building specialist should be able to give you advice about local planning regulations. It is worth also speaking to your local council about what is permitted in your area, although in some States the council may refer you to the State planning department if a Statewide granny flat scheme is in place. 

There are three types of granny flats - those that are detached in the garden, self-contained buildings, but attached to the main house, and indoor granny flats (for example, a lower storey conversion) attached to the main house.

However, the analysis below refers to planning provisions for the most well known form of granny flats, which are separate to the home (also known as secondary dwellings, ancillary dwellings or a dependent person’s units). 

A traditional granny flat, detached from the main family home

The planning laws around granny flats vary by State and territory, and it is advisable to check the intricacies thoroughly yourself, but broadly they are as follows: 

In NSW, you can get a fast-tracked approval from an accredited certifier if your lot is greater than 450 sq/m, although it is possible to get a development application approval from your local council even if your land is smaller than this.

The advantage of the NSW planning laws is that granny flats can be used by family members, or rented out to anyone else, which means they are popular among both owner occupiers and property investors and therefore are a good bet to add property value.

Victoria currently has strict rules about granny flats, which the government calls dependent person's units (DPU) because the person living in the flat needs to be dependent on the people living in the main family home. The granny flat must be self-contained with kitchen and bathroom, and must also be removable when it is no longer required. 

However, the good news is that the Victorian Government has organised for four local government areas to trial a new granny flat building code, that allows for more permanent structures and granny flats to be available to non-family members for rent.

In South Australia, the granny flat (or dependent accommodation) is currently required to share services such as utilities and even driveway access with the main house. 

 In the ACT, a granny flat must be built on a property with a minimum block size of 500sqm, with the granny flat measuring between 40sqm and 90sqm. 

The main house and granny flat should not be more than 50 per cent of the total plot ratio. There are building compliance requirements  and environmental standards to meet, so it is worth speaking with your builder or council to understand them. 

Tasmania doesn't have a stringent state-wide guideline for minimum block size, but the granny flat must be no more than 60sqm or 30% of the total area of the main dwelling (whichever is less). Granny flats can be rented to anyone, and what you can and can't build will depend on council regulations.

In Western Australia, the minimum block size is 450sqm but can change according to council regulations. State guidelines stipulate a maximum granny flat size of 70sqm, but some local Councils will let you build up to 100sqm, with more flexibility in rural areas. 

Unlike some other states, granny flats can be rented to non-family members with local council approval. 

Queensland mostly defers to local councils for its guidelines such as minimum block size. What you can build will hinge on local government regulations. Generally, the size allowance will vary between approximately 60 – 90sqm for the flat. 

Unless you apply for a development application where your granny flat is approved as a 'dual occupancy', it must be occupied by a 'member of your household'. However, some Queensland councils may allow non-family members to rent the granny flat.

What financial and relationship issues should I consider before building a granny flat?

Undertaking an investment on another family member's property can be fraught with tension unless you all agree how it will work. 

The person moving into the granny flat is often selling their main property to invest in its building, which will arguably increase the property value for the property owner. 

What happens if the family decides to sell?

What happens if the children occupying the main home have a relationship breakdown, move overseas or one dies?

How can a downsizer guarantee they won't be evicted from their granny flat at any point? 

These hypothetical situations can be covered off in a formal and properly prepared granny flat agreement, which includes defining the rights of occupation of the incoming granny flat occupant (known as a granny flat interest).

A granny flat agreement should protect older Australians and ensure they can stay in the granny flat, or even transfer their interest to another granny flat if the family moves house. 

It can also affect how your income and assets are assessed by social services for the purposes of pension payments and other benefits.

There is also the potential of capital gains tax implications for family home owners on whose land granny flats were placed, although the Australian Government recently announced it was intending to introduce legislation to deal with this issue if a family member is the flat occupant.  

It’s a very complex area - so it is highly recommended you seek independent financial and legal advice and have an agreement drawn up properly to avoid future issues.

What design features should I include in a granny flat?

Once you have confirmed State and local building regulations and sought professional help to understand any financial implications, it's time to address the more enjoyable aspects of designing your new home.

Whether you are building a separate dwelling or integrating your new home into the main house, it is important to ensure you have independence and privacy, while still enjoying all the benefits of being close to family and loved ones. 

Modern granny flats typically have an attractive design

Consider all the possible allowable locations on the property.

Not too close or too far from the main house, and taking advantage of any natural light is a good starting point.

If you plan to keep driving for the foreseeable future, and your local council allows for a carport, you will need to consider location in terms of car access as well.

Apart from the building's cosmetic appeal, consider how long you will be there and what future health needs you may have.

Wider doorways, bench heights, bathroom access, and safety rails are essential considerations for mobility. 

These small design modifications will help you maintain a more independent lifestyle for longer.

By integrating them into the design from the outset before you actually need them, your new home needn't feel like a retro-fitted hospital room.

While you will need to do some decluttering before you move in, there will be many things you aren't ready to throw away, so speak with your builder about smart storage solutions, so you can still enjoy all your treasured belongings.

Any allowable outdoor areas and courtyards should have a non-slip, safe and compliant flat surface, that will still be accessible as the years go by. 

Consider a courtyard or outdoor area that will provide as much privacy as possible (and is allowable), or think of smart ways to give yourself some outdoor space. 

If you are a keen gardener, consider raising the height of garden beds, so you can enjoy your hobby well into the future.

Granny flats can be as simple as a kit home or be professionally designed to integrate seamlessly into the main dwelling style. 

In conclusion

Once considered cheap featureless box-shaped structures in the bottom of a garden, the latest granny flat styles are innovative and private, and can provide residents with everything they need for the future. 

They are an affordable way to have a beautiful home for life. Despite the complexities with building regulations and financial considerations, they are well worth the effort to enjoy your independence for longer and to share precious memories with your family.  

Comments from our CEO CEO Amanda Graham said that over 50s were increasingly realising the benefits of moving into a granny flat, close to their family.

“The COVID-19 pandemic in particular has brought families close together, so it’s not surprising that these families are looking at establishing a granny flat arrangement,” Ms Graham said.

“The good news is that State and local governments are increasingly relaxing planning regulations for granny flats, as they provide additional low-scale housing generally without altering the streetscape.

“At the national level, the proposed regulation to exempt the family home from capital gains tax if a granny flat arrangement is in place with a family member is an exciting development which could lead to far more interest in granny flats as a housing option”.


Planning issues

Financial and tax issues

Please note this story has been prepared as a general guide only, and should not be relied upon as a substitute for seeking your own independent legal and financial advice.

Any references or links to third party resources or websites are provided in good faith, but we take no responsibility for their content, and you must rely upon your own enquiries and seek professional advice before acting.