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Can Tiny Homes Help the Housing Shortage?

Many Americans think local governments should incentivize additional dwelling unit (ADU) and tiny home construction to address housing shortages.

NEW YORK – Nearly 90% of the one in three Americans who stayed in an alternative living space rental enjoyed their time there. Alternative living spaces include tiny homes, modular homes, container homes, and converted vans or RVs. While they're more popular as a vacation novelty, recent Google Trends data shows searches for information about tiny homes has increased exponentially since 2011.

Sales seem to be largely to the 54% of Americans who want to invest an additional dwelling unit (ADU) or tiny home to rent it out. But nearly 75% think local governments should incentivize ADU and tiny home construction to address housing shortages.

In some communities like Los Angeles and Austin, TX, experiments with tiny homes have started to alleviate their homelessness population.

Why tiny homes?

Tiny homes cost a lot less to build and buy than full-size homes, making them more appealing in a difficult and turbulent housing market.

"Affordability is still a major challenge," says Zillow Chief Economist Skylar Olsen. "Those shopping now should see early-season price cuts on left-over or mispriced inventory. However, that may dry up fast as the weather and housing market warms with the season."

Rocket Mortgage claims the price of a tiny home averages between $30,000 and $60,000 but can be as low as $8,000. The cost of a typical American home, according to the St. Louis Federal Reserve Bank comes out to about $513,000. That's a higher price percentage wise, but nearly 80% savings overall.

Of course, prices vary depending on the size of the home, land costs, permits, etc., but even with a higher per-square-foot price, tiny home costs sound much more affordable, especially to those with lower incomes.

Another advantage of tiny homes is that buyers can customize their homes to meet their needs. While pre-built tiny homes are available, most buyers consult a builder and develop a blueprint tailored to their needs and wishes.

A lot of homeowners embrace the ability to customize their own tiny house trend because of the environmental benefits. According to United Tiny Homes, a tiny home produces about 2,000 pounds of carbon dioxide emissions every year. In comparison, a standard home produces about 28,000 pounds. Tiny homes are also often built with solar panels, composting toilets and rainwater harvesting, making them even more eco-friendly.

Another advantage of tiny homes is their mobility. Tiny homes can be built on a trailer and moved if the owners want to live elsewhere. For those who want a more mobile lifestyle or consider themselves digital nomads, a tiny house may be the solution they need. They can work from wherever they can park the house but don't have to unpack every time they move.

What is a tiny house, and who's buying?

Anything under 600 square feet is generally considered a tiny house. The average size is about 225 square feet. In comparison, U.S. Census data indicates that standard houses purchased in 2022 averaged 2,383 square feet. Potential tiny home buyers need to remember this results in smaller kitchens, bathrooms, and living space when compared to a traditional home or apartment.

GoDownsize estimates there were about 10,000 tiny homes in the United States by 2018. Tiny home and ADU popularity shot way up after the Covid lockdowns, but it can be difficult to get firm numbers since many owners may live off the grid and don't participate in surveys or polls.

Gen Z isn't as interested in tiny homes as older demographics. Since 2013, numbers have remained about even — 80% of tiny homeowners were over 30. Forty percent are 30 to 50, and 40% are over 50. Women account for 55% of tiny house owners, and 68% of those with a tiny home don't have a mortgage. Some 55% of these tiny homeowners also have more savings than the average American.

Many of the units in a typical retiree-oriented mobile home park fall under the definition of tiny homes. Additionally, some traditional homeowners add tiny homes for elderly relatives. These "mother-in-law" units may account for the number of those over 50 who own a tiny house. Tiny houses also offer advantages for those with limited mobility or who are not able to clean and maintain a standard-size home.

The dark side of tiny homes

Nothing is perfect, and there are drawbacks, even considering the advantages of a tiny home life. Tiny homes are more expensive per square foot than standard homes, according to Motley Fool. So, while buying a standard home may be more expensive initially, the buyers pay less per square foot.

Another issue is the lack of space. Some people can't live comfortably in such close quarters if they're living with another person. They need the extra room afforded by a traditional house. Those looking at tiny homes would do well to pause and think about whether they can live with their loved ones in 600 square feet or less.

The lack of space also translates into less storage. Tiny homes don't offer tons of space to put away personal items. Potential tiny house buyers must consider whether they will sell their personal items or put them in storage — which adds an extra expense. Potential tiny home buyers need to plan what they can bring to their new home and what they cannot. United Tiny Homes proposes the theory that this forces people to live more mindfully since they can't take it all with them.

One surprising downside to the tiny house revolution is resale value. Selling a standard home price often yields a higher profit than what the homeowners initially paid for it. This doesn't always translate to a tiny house. Many owners find that they can sell their tiny home, but it may not be for as much as they think. According to RubyHome, most of these owners don't recoup their entire investment in their tiny homes when they sell. Zillow agrees, noting you should consider your tiny home like a travel trailer or RV — the benefit of mobility is also it's downfall.

Another interesting quirk of tiny houses is that they're not legal in some states across the United States. Zoning may also be an issue since the tiny home may not meet the area's building codes for a single-family dwelling. Owners have also been asked to move their homes from properties. Dealing with gray areas of zoning may involve unforeseen fees or legal issues.

If owners have a tiny home built on a trailer, they may have to move it at some point. They will either have to rent a vehicle or buy one that can tow that amount of weight, which incurs extra expenses for licenses, fuel, and maintenance.

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