If you’ve been sitting on a decent-sized block wondering how to squeeze more income out of it, you’re not alone. Granny flat investment in Australia has absolutely exploded over the past few years — and in 2026, the numbers are making more sense than ever.
With national home values up 8.8% over 2025 according to PropTrack, rental vacancy rates still tight in most capitals, and building costs starting to stabilise after the post-COVID blowout, adding a secondary dwelling to your existing property is one of the smartest value-add plays going around.
But here’s the thing: every state has different rules. What flies in Sydney won’t necessarily work in Adelaide or Brisbane. So let’s break it all down — costs, yields, regulations, and the traps to avoid — state by state.
Why Granny Flats Are the Ultimate Value-Add in 2026
Before we get into the state-specific stuff, let’s talk about why granny flats are having a moment.
The yield argument is hard to ignore. A typical 60 square metre granny flat in Melbourne costs around $220,000 to build and can pull in $24,000 to $26,000 per year in rent. That’s a gross yield of roughly 10–11% on the construction cost alone — way ahead of the 3–4% gross yield you’d get buying a standalone investment property in the same suburb.
Property value uplift is real too. Quality granny flats are adding $90,000 to $120,000 in value to properties, according to independent valuations. So you build for $220K, add $100K in value on day one, and then start collecting rent on top.
Supply shortage isn’t going anywhere. The RBA lifted the cash rate to 3.85% at its first meeting of 2026, but the real driver of the Australian property market isn’t interest rates — it’s the chronic undersupply of housing. Population growth remains strong, and we’re nowhere near building enough homes to keep up. Granny flats are part of the solution, and governments know it.
State-by-State Granny Flat Rules in 2026
New South Wales
NSW is the granddaddy (pun intended) of granny flat investment. The state has been actively encouraging secondary dwellings through the Housing SEPP for years, and the framework is well-established.
Key rules:
- Minimum lot size: 450 square metres
- Maximum floor area: 60 square metres
- Approval pathway: Complying Development Certificate (CDC) for fast-track approval — typically 20 business days. If your site doesn’t tick every box, you’ll need a Development Application (DA), which takes 40+ days
- Setbacks: 0.9m side and rear minimum (CDC pathway)
- Renting: No restrictions — you can rent to anyone
The CDC pathway is a massive advantage in NSW. If your block meets all the prescribed standards, you can skip the council DA process entirely and get approved through a private certifier in about a month. That speed means less holding cost and faster time to rental income.
Watch out for: Bushfire-prone land, flood zones, and heritage overlays can all knock you out of CDC eligibility. Always check the planning constraints on your specific lot before committing.
Queensland
Queensland has quietly become one of the best states for granny flat investors. Recent state-wide amendments now allow homeowners to rent secondary dwellings to anyone — not just family members, which was the old rule.
Key rules:
- Lot size: Generally 450 square metres minimum, but varies by council
- Maximum floor area: 80 square metres in many council areas (more generous than NSW)
- Approval: Accepted development in most councils — no full DA required in many cases
- Rates: Generally no separate rates — the granny flat is treated as part of the main dwelling
The fact that QLD doesn’t typically slug you with separate council rates on the granny flat is a nice bonus for your cash flow. And the 80 square metre cap means you can build a proper two-bedroom unit that attracts quality tenants.
Rental yields in QLD: Regional centres like Cairns and Townsville are seeing strong demand for standalone rental accommodation. A well-built granny flat in these areas can deliver seriously attractive yields given the lower land values.
Victoria
Victoria has been slower to embrace granny flats than NSW and QLD, but things are changing. The state government has been pushing density in established suburbs, and granny flats (called Dependent Person’s Units or secondary dwellings) are becoming more common.
Key rules:
- Lot size: No state-wide minimum — council-dependent
- Maximum floor area: Typically 60 square metres
- Approval: Generally requires a planning permit (no fast-track CDC equivalent)
- Restrictions: Historically limited to dependent persons, but enforcement has relaxed significantly
Melbourne’s tight rental market makes granny flats attractive. With median rents still climbing and vacancy rates below 2% in most inner and middle-ring suburbs, a well-located granny flat won’t sit empty for long.
Build costs in Melbourne: Expect to pay $2,200 to $3,000 per square metre depending on finishes, or roughly $130,000 to $180,000 for a basic 60 square metre flat, up to $220,000+ for higher-spec builds.
South Australia
SA has been making moves to encourage infill development, and granny flats are part of that push. The Planning and Design Code that replaced individual council development plans has streamlined the rules across the state.
Key rules:
- Lot size: Depends on the zone — typically 450 square metres minimum
- Maximum floor area: 60 square metres
- Approval: Development approval required, but the process is more straightforward under the new Planning and Design Code
- Ancillary dwelling provisions: Must be ancillary to the main dwelling on the same allotment
Adelaide’s relative affordability compared to Sydney and Melbourne means your total project cost (land + existing house + granny flat) can be significantly lower, pushing your overall yield higher.
SA bonus: Building costs in Adelaide tend to run 10–15% cheaper than Melbourne and significantly less than Sydney. A basic granny flat build might come in around $120,000 to $160,000.
Western Australia
WA has historically been more restrictive with secondary dwellings, but the state has been opening up. The R-Codes (Residential Design Codes) govern what you can build.
Key rules:
- Lot size: Generally 450 square metres minimum for ancillary dwellings
- Maximum floor area: 70 square metres
- Approval: Development approval required through local council
- Must be ancillary to the main dwelling
Perth’s property market has been one of the strongest performers nationally over the past two years, with values rising sharply off a low base. Adding a granny flat to a well-located Perth property can be a solid play, especially in suburbs where land values have jumped but rental supply hasn’t kept up.
What Does It Actually Cost to Build a Granny Flat in 2026?
Building costs have stabilised compared to the chaos of 2022–2023, but they’re not exactly cheap. Here’s a rough guide:
| State | Basic Build (60m²) | Mid-Range (60m²) | High-Spec (60m²) |
|---|---|---|---|
| NSW | $150,000–$180,000 | $180,000–$220,000 | $220,000–$280,000 |
| QLD | $130,000–$160,000 | $160,000–$200,000 | $200,000–$250,000 |
| VIC | $130,000–$180,000 | $180,000–$220,000 | $220,000–$270,000 |
| SA | $120,000–$160,000 | $160,000–$190,000 | $190,000–$240,000 |
| WA | $130,000–$170,000 | $170,000–$210,000 | $210,000–$260,000 |
These figures include site preparation, construction, plumbing, electrical, and basic landscaping. They don’t include council fees, design costs, or any unusual site works (think steep blocks or poor soil).
Pro tip: The sweet spot for investment-grade granny flats is usually the mid-range. You want something that’s well-built and attractive to tenants, but you don’t need marble benchtops and designer tapware. Think durable, low-maintenance finishes that’ll last 10+ years without major upkeep costs.
The Numbers: How to Calculate Your Granny Flat ROI
Let’s run a quick example using realistic 2026 figures:
Scenario: Sydney’s western suburbs
- Build cost: $190,000 (mid-range 60m² flat)
- Weekly rent: $450 (conservative for a modern 1-bed granny flat in western Sydney)
- Annual rent: $450 × 50 weeks = $22,500 (allowing 2 weeks vacancy)
- Gross yield on build cost: 11.8%
- Ongoing costs (insurance, maintenance, rates increase): ~$3,000/year
- Net return: ~$19,500/year or approximately 10.3% net yield
Compare that to buying a $700,000 unit in the same area renting for $500/week:
- Annual rent: $25,000
- Gross yield: 3.6%
The granny flat wins on yield by a country mile, and you haven’t had to stump up for a whole new property purchase including stamp duty, legal fees, and a separate mortgage.
Common Mistakes to Avoid
1. Not checking planning constraints first. Flood zones, bushfire overlays, heritage areas, and easements can all kill a granny flat project before it starts. Always get a planning report on your specific lot.
2. Underestimating site costs. If your block slopes, has poor drainage, or needs significant tree removal, your costs can blow out by $20,000 to $50,000. Get a proper site assessment.
3. Building too cheap. A bargain-basement granny flat that looks and feels cheap will attract budget tenants and create maintenance headaches. Invest in quality where it counts — waterproofing, ventilation, and kitchen/bathroom fixtures.
4. Ignoring the approval pathway. Going straight to a builder without understanding whether you need a CDC or DA (or whether your block even qualifies) is asking for expensive surprises.
5. Forgetting about access. Your granny flat tenants need their own access path, parking considerations, and ideally a separate entrance. Plan this from the start.
Is a Granny Flat Right for Your Property?
Not every block is suitable. Here’s a quick checklist:
- ✅ Block is 450m² or larger (check your state’s rules)
- ✅ No major planning overlays (flood, bushfire, heritage)
- ✅ Enough rear or side yard space for the flat plus setbacks
- ✅ Sewer and stormwater connections are feasible
- ✅ Separate access for future tenants is possible
- ✅ Local rental demand is strong for small dwellings
If you tick most of those boxes, it’s worth getting a feasibility assessment from a designer or town planner who knows your local area.
The Bottom Line
Granny flat investment in Australia in 2026 is one of the best value-add strategies available to property investors. The combination of relatively low build costs (compared to buying a whole new property), strong rental yields, and property value uplift makes it a compelling play — especially in a market where housing supply can’t keep up with demand.
The key is doing your homework on your specific state’s rules, getting your approval pathway sorted early, and building something that tenants actually want to live in. Get those things right, and your backyard could become one of your best-performing assets.
General information only. This article does not constitute financial, legal, or taxation advice. Property investment involves risk, and returns are not guaranteed. Always consult qualified professionals — including a licensed financial adviser, solicitor, and town planner — before making investment decisions. The authors are not licensed under an Australian Financial Services Licence (AFSL).
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