Granny flats could form a critical part of the solution to housing shortages across Australia’s major cities, a new analysis has found.

In their latest research, national town planning research platform Archistar, real-estate construction lender Blackfort and property data and analytics provider CoreLogic have assessed all residential blocks across the metropolitan areas of Sydney, Melbourne and Brisbane to determine how many have potential for building a self-contained two-bedroom granny flat.

All up, it found that 655,000 properties may be suitable for granny flat construction across the three cities combined.

Encouragingly, many suitable sites are close to transport and amenity.

Of the 655,000 properties, more than one third (36 percent) are within two kilometres of either a train or light rail station whilst around one in six (17 percent) have a hospital within their suburban boundary.

Such sites may present opportunities to fast-track housing options for essential workers such as healthcare staff.

The latest analysis comes as Australia remains in the grip of a crisis in housing affordability and supply.

Nationally, rental vacancy rates stood at just 1.2 percent in August – a number which indicates a substantial undersupply of available dwellings. (As a rule-of-thumb, many real estate analysts consider the housing market to be adequately supplied with a vacancy rate of around three percent.)

Moreover, there are expectations that the situation will deteriorate in coming years.

In April this year, the National Housing Finance and Investment Corporation (now known as Housing Australia) said it expected that demand for new housing would outstrip new housing supply over the five years to June 2027 to the tune of 106,000 dwellings.

Whilst there is no one single answer, granny flats are considered to form part of the solution through enabling additional housing to be constructed on existing properties.

In their report, aforementioned firms examined the suitability of sites taking account of town planning guidelines, minimum land size requirements and the footprint of the existing property.

For the purpose of the study, a granny flat is considered to be a self-contained two-bedroom/one bathroom dwelling which measures at least 60,000sqm internally.

Granted, not all households desire to have a granny flat on their property.

However, the report notes that granny flats may deliver significant benefits for property owners.

If well designed, granny flats have the potential to generate additional rental income and/or add value to the property.

For a house worth around $500,000, CoreLogic estimates that granny flats could add up to $160,000 to the property value.

Granny flats may also enable multi-generational households. They could, for example, provide a first-step into the property market for younger generations whilst also enabling young adult children to remain close to the family unit for longer. Granny flats may also be a suitable downsizing option for older generations.

Across the three cities, Sydney is home to the most granny flat development opportunities. All up, the Sydney metropolitan area has around 242,000 suitable properties representing 17.6 percent of the metro-regions stock.

Australia’s biggest city is also ripe for granny flat development. Over the period spanning 2023 until 2027, the Sydney Metropolitan area is expected to experience a shortfall of new dwelling construction compared with new housing demand to the tune of 12,600. Particular shortages likely to be evident throughout 2025 and 2026.

In terms of municipalities Central Coast hosts the most granny flat development opportunities with 41,569 or 17.2 percent of all potential sites likely to be suitable. This is followed by the Northern Beaches (19,884/8.2 percent), Hornsby (18,344/7.6 percent), Blacktown (17,909/7.4 percent) and Ku-Ring-Gai (14,617/6.0 percent).

At a suburb level, neighbouring North-West suburbs show the highest opportunities for granny flat development. Baulkham Hills (4,673/43.3 percent), Castle Hill (4,423/39.8 percent), Cherrybrook (3,421/61.8 percent), Carlingford (2,910/46 percent) and West Pennant Hills (2698/49.3 percent) stand out due to their larger land areas compared to inner-city neighbourhoods.


Sydney Granny Flat opportunities

(source: ‘Granny flats: Where at the greatest opportunities for development?’, report, CoreLogic, Archistar, Blackfort, October 2023)

Beyond Sydney, the situation in Melbourne is interesting.

All up, the city is expected to experience shortfalls in new dwelling construction to the tune of 23,800 over the five years to 2027 – almost twice the housing shortfall which is expected for Sydney over the same period.

Yet whilst the city has the second largest number of granny flat development opportunities (almost 230,000 potential sites), its portion of development opportunities relative to available property stock (13.2 percent) is the lowest of the three big capitals.

Within Melbourne’s broad regions, the Mornington Peninsula offers the highest potential for granny flat development with 23,870 sites which make up 10.4 percent of the total sites across the city. Elsewhere, Casey (16,861/7.4 percent), Monash (13,960/6.1 percent), Knox (13,741/6.0 percent) and Manningham (13,063/5.7 percent) round out the top five municipalities for the most granny flat development sites.

East of Melbourne’s CBD, the suburbs of Glen Waverley (4,009/27.4 percent), Rowville (3,674/30.3 percent) and Berwick (3,604/18.3 percent) show the highest opportunities for granny flat investment sites. Hotspot potential extends out to the coastal suburb of Rye (3,705/38.6 percent) and the northern suburb of Doncaster East (3,397/34.9 percent).


Melbourne Granny Flat opportunities

(source: ‘Granny flats: Where at the greatest opportunities for development?’, report, CoreLogic, Archistar, Blackfort, October 2023)

Finally, there is Brisbane, which has a more imminent housing construction shortfall which is expected to amount to 3,100 in 2023.

Across the three cities, Brisbane has the greatest percentage of suitable sites, with almost one quarter (23.3 percent) being potentially suitable for granny flat development across the metropolitan area. This amounts to 185,000 suitable sites all up.

Across the council areas of Greater Brisbane, the Brisbane LGA has the greatest number of suitable granny flat development sites, with 184,660 or 40.5 percent of all opportunities. This is followed by Logan (33,414/18.1 percent), Moreton Bay (31,949/17.3 percent), Ipswich (22,569/12.2 percent) and Redland (19,243/10.4 percent).

The top five Brisbane suburbs with the highest potential for granny flat development sprawl out across Brisbane’s middle and outer ring suburbs. In particular, opportunities are evident in The Gap (2,986/48.8 percent), Alexandra Hills (2,789/46 percent), Redbank Plains (2,479/30.3 percent), Albany Creek (2,378/44 percent) and Rochedale South (2,215/42.3 percent).


Brisbane Granny Flat opportunities

(source: ‘Granny flats: Where at the greatest opportunities for development?’, report, CoreLogic, Archistar, Blackfort, October 2023)

Architstar co-founder Dr Benjamin Coorey said that the potential for granny flats to help to accommodate a growing population should not be underestimated.

“Since granny flat developments leverage existing lot areas and require no changes to town planning regulation, they offer an immediate opportunity to address housing shortages and affordability pressures expected in the coming five years for both buyers and renters,” Coorey said.

“Granny flats present a cost-effective opportunity to boost housing supply for growing capital populations close to existing infrastructure such as railways, bus routes and major road networks for state and local governments.

“While building regulations for secondary dwellings differ state to state, this unlocks a combination of accessibility and opportunity to fast-track affordable housing options for all demographics, particularly essential workers in industries such as the health care sector.”