Homeowners looking to boost their household income or help out loved ones are increasingly building granny flats and dual occupancies in their backyards.

While many homeowners would prefer to keep their backyards as they are, Australia’s housing crisis and cost-of-living crunch are pushing some to build additional dwellings on their unused land.

Granny flat builders say there has been a surge of interest recently, while people are searching online for properties with secondary homes more and more.

On realestate.com.au, the top keyword that recorded the largest increase in searches last year was ‘dual living’, followed by ‘granny flat’.

Granny flats and dual occupancy homes typically share the same property with no subdivision needed, but a granny flat is smaller than a main residence, while dual occupancy homes tend to be about the same size.

Builder and director of NSW-based Granny Flat Solutions Wally Gebrael said these smaller dwellings were becoming more popular, with sales marching higher.

A two-bedroom granny flat on average costs between $180,000 and $200,000 and takes about four months to build if not prefabricated, Mr Gebrael said.

“Investors are a big group for us,” he said. “A lot of property owners who have a large backyard or investment property will build a granny flat to get the additional income.

“Investors also love granny flats because you don’t need to subdivide your property to build, so you’re saving on the time and money associated with subdivision.

“The second largest group are homeowners who are building granny flats for their families, either building them for themselves if they are looking at downsizing or for their children who can’t afford to buy anything.

“If you look at the amount of money you need to borrow and then compare it to the rent you could receive, the returns could be significant.”

For renters, granny flats can be attractive as an affordable alternative to a house.

Policymakers across the country have also been cutting red tape for granny flats and dual occupancy homes to help alleviate the country’s housing crisis.

South Australia recently changed the rules so granny flats could be rented to anyone rather than limited to immediate family members only – a change that Queensland made in 2022.

PropTrack senior economist Paul Ryan said cutting red tape to build secondary homes was helping increase Australia’s housing stock.

“People want to add to their homes and increase density, and granny flats are one of the few ways that are becoming easier and allowed,” Mr Ryan said.

“The housing crisis is also pushing the granny flat trend because it’s a way to get housing on an existing block and use housing more flexibly.”

That said, there are risks that homeowners should consider before building in their backyard, especially homebuyers who are buying a property with plans to build.

It’s important to research the zoning rules on their property and the surrounding area, and consider utility requirements, height restrictions and the layout of the backyard, among others.

The other key consideration is how much value a secondary home can add to the property’s overall value.

In areas where there is a mix of different housing types, homeowners are more likely to get back the cost of building the granny flat in their property’s sale price.