Granny flat popularity surges, but sector still in its infancy

National Australia Bank (NAB) has found that renovation loans have jumped by 21 per cent in 2025, exceeding growth levels for the last two years.

At the same time, searches for “granny flat” are also surging on property platforms.

Domain data shows “granny flat” was the most searched property term in Sydney, up 3.1 per cent, while the term also entered the top 10 in Perth (+59.8 per cent) and Adelaide (+24.4 per cent).

The Housing Industry Association expects granny flat construction to increase significantly, forecasting a tenfold rise in builds by 2026 compared to four years ago.

Ben O’Keefe, mortgage broker at Strategic Mortgages in Perth, said that he has seen a noticeable uptick in clients looking to finance renovations, although not just granny flats.

“We are seeing an uptick in renovations, more so extensions and remodelling, but we have seen an increase in granny flat inquiries as well,” he said.

“A lot of this is driven by multigeneration living, and strategies around building supplementary income streams (driven by the likes of PK Gupta and Jack Henderson), but it also comes down to affordability, stamp duty and risk.”

O’Keefe added that while some lenders do recognise the financial value of granny flat developments and factor income streams into serviceability calculations, lender policies and regulatory requirements are still evolving.

“Some lenders will use granny flat income for servicing, but it’s not black and white,” he said.

“The development has to have separate access. If it’s a new granny flat, the lender needs to control the funds, similar to construction loans). It also must be council approved, and not all lenders are on board right now.

“Council approval and valuation are also big hurdles.”

NAB executive Denton Pugh said, however, that the uptick in interest reflects a broader shift in home ownership and that economic and demographic conditions would ensure that the new style of home won’t be going anywhere.

“People want their homes to work harder for them,” Pugh said.

“With affordability still tough and rental demand rising, adding a secondary dwelling is becoming a smart, practical option. It gives home owners extra space without stretching into a much bigger mortgage or taking on the cost of moving.

“A well‑designed granny flat is more than just four walls. We’re seeing families use them to stay closer together, whether that’s giving ageing parents a safe, comfortable place to live nearby, or helping adult children stay at home longer as they look to enter the property market.

“Granny flats 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.”

O’Keefe added: “I think the housing supply crisis isn’t going away anytime soon, and with an ageing population as well, I think this is not just a short term trend.

“John Carey, Western Australia’s minister for housing, is also pushing hard. There’s still a lot of red tape and roadblocks for lenders and regulators, similar to modular homes.”

[Related: Government announces new First Home Supply program]

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