Affordability is an ongoing issue around Australia’s major capital city housing markets.
And as more people are alienated from select ‘peak postcodes’ by exponentially rising property values, it’s perhaps time for investors to think ‘outside the square’ when it comes to providing affordable accommodation.
So have you considered a granny flat?
Granny flats are making a resurgence and for good reason. These cheap and cheerful dwellings – often referred to as ‘in-law suites’ – potentially provide an affordable rental solution, while boosting your property investment’s cashflow.
Could this be the answer?
According to RP Data CoreLogic, property prices across our major cities have risen 22 per cent over the last three years, with Sydney suburbs in particular moving ever out of reach from the ‘average’ paid Aussie.
Ranked among the world’s top ten most expensive cities for prime residential real estate, getting your foot in the proverbial property door of the Harbour city is virtually impossible on anything but a high paying corporate salary these days.
The biggest problem with these pockets of growing wealth chasms is that the people we rely on to provide daily essential services within our neighbourhoods, are being priced out of entire swathes of suburbs.
Take Sydney’s Dee Why for instance, where the median house price is currently $1.2million, up by over 30 per cent in the past two years alone. Now consider the average teacher, nurses or police officer’s annual take home wage.
Not surprisingly, many service provision industries are struggling to find and retain workers in large areas that were once considered ‘run of the mill’, blue collar suburbs.
Professionals we rely on to ensure the education and welfare of our communities are being forced to either bite the bullet and spend almost their entire salary on sub-standard accommodation, or face hours of daily commuting.
Enter the granny flat
It appears local government planning authorities are not taking this growing social concern lightly, with numerous Sydney councils freeing up approval processes around granny flat permits across the inner suburbs.
In fact the number of granny flat approvals has more than doubled in some parts of Sydney over the last year, with an average 35 per cent surge across six local government areas.
Speaking to America’s Wall Street Journal, operations manager for Sydney based Ian Cubitt’s Granny Flats and Studios, Mark Moumdjian said, “Demand has basically skyrocketed.
“We build in excess of 300 a year, whereas, say about five years ago, we were doing more like 30 or 40 a year.”
In the PM’s electorate of Warringah, housing affordability is so problematic that town-planning officials are considering loosening building restrictions even further to boost the supply of reasonably priced housing.
This could include lifting the long imposed ban on granny flats in some semirural areas on the city fringes, renowned for their palatial homes, sprawling front yards and sparkling swimming pools.
Not to be sneezed at
Now, you might have a preconceived notion about granny flats as little boxes made of ‘ticky tacky’; a complete wipeout when it comes to smart property investment options, right?
Well, not necessarily. Sure, a granny flat won’t rake in loads of capital or add massive value to an existing asset in your portfolio. But it could certainly make that asset a lot more sustainable over the long term.
Jeff Cox, a property owner in Sydney’s Mona Vale, told the Wall Street Journal that he had a 2 bedroom, 60 square metre granny flat erected behind his home in the popular Northern Beaches suburb at a cost of $130,000.
And the income it generates? How does $680 a week sound?
“The great big patch of grass down the back was really only used by the dogs running from time to time and the lawn mower man coming to mow it,” he said.
“I’m not sure how many investments there are in the world where you put down $130,000 and get a return of $35,000 a year for good.”
Adding value in more ways than one
Although the equity in your property investment isn’t likely to grow in leaps and bounds with the addition of a basic granny flat structure, it’s a strategy that could make your mortgage repayments a lot more palatable.
For investors who’ve bought into the lofty heights of Sydney’s inner suburbs at lower, more affordable interest rate levels, increasing your long term yields and shoring up cashflow with a granny flat rental could be a worthwhile consideration as rates – and your repayments – begin to rise down the track.
Moreover, this is the type of investment move that demonstrates a social conscience.
Not only do you stand to increase your bottom line as an investor with the addition of a granny flat to an existing dwelling, you’ll also be providing much needed housing to the people who keep our world turning.
In the next edition of the Trilogy Report, we’ll take you through some of the considerations when it comes to determining if a granny flat is the right investment option for you.
First and foremost, you need to know whether or not it might help or hinder your overall investment strategy and outcomes.
Remember that rental yield Jeff was enjoying on his Mona Vale granny flat? I think it was close to 27 per cent gross. Not a bad reason to take a closer look at the whys and wherefores of building a neat little bungalow out the back. Don’t miss it!