Granny flats are quickly becoming one of Australia’s hottest property plays as home owners cash in on extra income and hidden value. Here’s what’s driving the surge and how to get in on it.

Home owners have increasingly been turning towards granny flats to create additional income, add bedrooms, and unlock more value from their properties.

Recent National Australia Bank (NAB) data showed that granny flat financing through renovation loans has jumped by 21 per cent in 2025, surpassing growth seen in the previous two years.

For the last 24 months, granny flats have surged back into favour, becoming 2025’s most searched property term in Sydney, up 3.1 per cent, in Perth, up by 59.8 per cent and in Adelaide, 24.4 per cent.

Similarly, the Housing Industry Association has forecast granny flat construction to surge tenfold by 2026 compared to four years ago, as more Australians turn to flexible housing solutions for family support, rental income, and long-term planning.

Homes & Granny Flats managing director Christopher Sarkis said that granny flats have become an increasingly important part of the housing landscape, particularly with rising property prices and demand for flexible living solutions.

“From our experience, they offer strong benefits including additional rental income, multi-generational living and increasing overall property value when designed and positioned correctly,” Sarkis told SPI.

Data from Fundd’s 2025 granny flat guide showed that two-bedroom secondary dwellings in Sydney and Melbourne rent for $350 to $600 a week, delivering an annual income of $18,000 to $36,000, depending on location and finish quality.

Sarkis said that recently, owners have shifted towards higher-quality, fully self-contained granny flats rather than basic secondary dwellings, changing buyer expectations and positively influencing resale appeal.

“When done right, a well-built granny flat can significantly enhance both the functionality and marketability of a property.”

From a buyer’s perspective, Sarkis said the key was to target properties with strong fundamentals for a granny flat: adequate land size, favourable zoning, easy backyard access, and existing services to keep installation costs down.

“Corner blocks, wider frontages, and properties with rear lane access are particularly attractive as they allow for better privacy and independent access.”

Additionally, Sarkis said that buyers should look for growth corridors and suburban areas where affordability will still remain relatively accessible, but rental demand is high.

“Areas with good infrastructure, proximity to transport, and strong population growth tend to perform best, as granny flats can deliver solid rental yields and long-term capital uplift.”

NAB executive Denton Pugh said the boom in granny flats reflected a shift toward home ownership, with homes working harder to accommodate secondary dwellings amid affordability pressures and rising rental demand.

“It gives home owners extra space without stretching into a much bigger mortgage or taking on the cost of moving,” Pugh said.

Additionally, Pugh said a well-designed granny flat enables families to stay close, supporting ageing parents and helping adult children stay home longer while they work toward entering the property market.

“They can give people the room they need as life changes, or generate steady rental income. More and more, they’re becoming a long-term investment that strengthens the value of the property,” he concluded.

This article was first published on Smart Property Investment, a sister-brand of Property Buzz.