More than half a million homeowners across Australia’s eastern seaboard have enough space on their property to build a granny flat, which could boost home values by 30% and add around 27% to rental income, according to an analysis by CoreLogic and Archistar.

There are 583,440 properties in Sydney, Melbourne and Brisbane that meet the criteria for an additional self-contained unit of at least 60 square meters, according to the research. Constructing a two-bedroom granny flat would require an initial investment of around $200,000, while the outlay for a one-bedroom dwelling would be nearly $120,000.             

“Building a granny flat is becoming an increasingly compelling proposition for homeowners in a relatively lacklustre market. Not only can it help to manufacture new capital gains, but it has the potential to generate rental income while meeting demand for more affordable housing,” CoreLogic Head of Research Tim Lawless said.

Rent in a granny flat is usually less than the price of a standard apartment, making it an attractive and affordable option for renters on a budget, according to CoreLogic.                                                                       

A lot of properties suitable for a granny flat are situated in densely populated and traditionally expensive areas, such as Sydney’s Northern Beaches or Hornsby.

Archistar co-founder Robert Coorey said that this kind of property could be a source of earnings. “Many home-owners are sitting on a pot of gold in the form of excess land that could be developed to generate a new income stream. This has wider economic benefits for renters who want to access popular suburbs without paying a premium,” he said. “The family benefits of a secondary residency can’t be overlooked, whether that’s giving adult children more privacy while they save for a mortgage, keeping loved ones close as they become more reliant on care or having additional accommodation for overseas visitors.”

In addition, capitalising on this untapped potential for half a million additional dwellings could result in economic and social benefits, including greater employment opportunities for builders and other tradespeople.

“What is a relatively small outlay for homeowners could boost the construction industry to the tune of $87.5bn and accommodate the growing population in some of the cities’ most popular suburbs,” Coorey said. “While the benefits are tremendous, one minor watch-out is regulation on second residencies, which tends to change state to state.”

Sydney showed the greatest potential for granny flat development, with 233,218 properties (15.9%) meeting the criteria. Topping the list of suburbs in the city suitable for the project is Castle Hill, where granny flats could be built on 4670 dwellings.

Brisbane has 204,598 properties suitable for developing granny flats, accounting for 21.6% of all properties in the city. In the Melbourne metropolitan area, meanwhile, 7.2% of properties (145,625) are suitable for constructing granny flats, due to stricter town planning regulations.