The popularity of tiny homes expands with housing crises and increased environmental concerns, both of which are at the forefront of many Americans’ minds at the dawn of the 2020s. Researchers and data analysts worldwide agree that the tiny home market is set to boom in the next few years.

What is a Tiny Home?
Have you ever thought about decluttering your life, selling most of your things, and moving into a tiny home? If so, you’re not alone—more than half of your fellow Americans have thought along the same lines.

The difference between just a small house and a “tiny” one is defined in the International Residential Code, Appendix Q as “a dwelling that 400 square feet or less in floor area, excluding lofts.” More liberal definitions include any home up to 1,000 square feet.

While some tiny homes are built on permanent foundations, most are built on trailers, so they can be hitched to a heavy-duty vehicle and be moved from one location to another. This has led some municipalities, however, to label tiny homes “recreation vehicles” unsuitable for primary dwelling. A tiny home may have a septic tank and solar power panels; it might also be hooked up to services like sewers and electricity.

• The median size of a new single-family home in the United States is 2,301 square feet.
• To be considered a tiny home, a structure must have a ceiling height of no less than 6’4″.
• The average height of a tiny home is 8 ft.
• The smallest tiny homes are 80 square feet.

A Home and a Lifestyle
The “tiny house” or “tiny living movement” originated in the late-70s and picked up speed in the 80s, when popular culture promoted the “greed is good” mentality. A countercultural rise of environmentalism and social consciousness inspired people to downsize, declutter, and live more simply. Tiny homes sounded good to people who wanted to get away from the hustle and bustle of city life and all the high-cost materialism that went with it. Tiny home pioneer Lester Walker cited Henry David Thoreau’s Walden as an inspiration.

After the financial downturn in 2008, the movement gained additional traction as more and more people struggled to make the monthly mortgage on their slightly-too-large homes. “Right-sizing” started to become the trend; in other words, buyers focused less on getting more bang for their buck and more on finding homes with square footage that was, as Goldilocks would put it, “just right.”

Why Choose a Tiny Home?
Tiny homes can be less expensive than traditional homes, so much so that many cities are turning to tiny home developments as potential solutions to intermittent and chronic homelessness. The low cost is just one of the perks – and possibly one of the drawbacks. Because tiny houses are so inexpensive to personalize and built-to-order, resale of your tiny home may be tough. In fact, most of the benefits of tiny homes include hidden consequences.

Affordability
In terms of dollars-per-square-foot, a tiny home is unlikely to be cheaper than a traditional home. In fact, the opposite is often the case. The nature of tiny homes, however, necessitates that spaces are designed to be multi-purpose. Additionally, because tiny homes are generally so much more personalized than traditional homes, you really do get more bang for your buck, so to speak, in terms of usage.

Plus, a smaller price tag means less loan interst to pay; it’s not uncommon for mortgage holders to end up paying an additioal 50% of what their home is worth in interest alone.

• 60% of tiny homeowners have no credit card debt.
• On average, a tiny home costs less than one-fifth what a traditional home would cost.
• The average sales price of a newly-built single-family home is $383,900.
• The average listing price of a home on Zillow is $275,000.
• The average cost of a built-to-suit tiny house is $59,884.
• The average cost of a DIY home build is closer to $23,000.
• The most luxurious tiny homes top out at $180,000.
• One couple built their own 192-square-foot tiny home for less than $8,000.
• 78% of tiny home dwellers own their home compared to 65% of traditional home dwellers.
• 89% of tiny house dwellers have less credit card debt than the average American.
• 55% of tiny house owners have more savings than the average American.

Smaller Carbon Footprint
Living in a smaller home means less electricity or natural gas usage; it costs less to heat or cool a smaller space. Many tiny home builders also install energy-saving items like solar panels and washer/dryer combos that do the work of two machines in one.

On a related note, tiny house owners tend to use more fresh foods than pre-packaged or frozen. This is partially due to smaller fridge/freezer space, but it’s also a part of the “tiny home cultre.” The early interest in tiny homes was, after all, to get away from big city life and get back to nature, living as cleanly and simply as possible.

Other common behavioral changes among new tiny house dwellers include greater conservation of water, increased composting, more purposeful purchasing habits, and less housekeeping and maintanence.

• A tiny home uses about 7% of the energy that a traditional house does.
• Moving to a tiny home can decrease a household’s ecological footprint by 45%.
• Tiny homes emit an average of 2,000 pounds of greenhouse gasses each year; traditional homes emit 28,000 pounds.
• Tiny homes use an average 914 kilowatt hours (kWh) each year while traditional homes use 12,773 kWh.
• The ecological footprint of the average tiny home is 3.87 global hectares (gha); a traditional home’s footprint is 8.4 gha.
• 85% of tiny homes operate at above-average energy efficiency.

Nature Lovers’ Ideal
Because the interior of a tiny home is inherently small, having an outdoor seating and/or dining area can essentially double the size of your living space. This means, however, that in inclimate weather, your living space will suddenly decrease by half. The most popular places for tiny home living are in warm and temperate climates.

Appreciation & Resale Value
Does the value of tiny homes appreciate? Market professoinals are reluctant to make any firm statements regarding the future of the tiny home market because it is so relatively new in comparison to other, more traditional housing markets.

According to data from Realtor.com, tiny homes appreciated at a rate of 19 percent compared to 9 percent for “regular” houses in 2017. However, other sources claim that tiny homes depreciate at a higher rate since tiny homes on wheels (portable homes) are considered in many communities to be Recreational Vehicles, and face the same fate as any other “vehicle” by depreciating rapidly.

Where you choose to live in your tiny home has a major impact on its value.

• 688,500 homes are sold every month in the United States.
• The top three states with the most tiny homes are California, Florida, and Colorado.
• 15.5% of tiny homes are in California.
• California has by far more tiny home builders than any other state.
• The state of Oregon has towns that specifically welcome tiny homes.
• Existing home price appreciation is expected to hover at around 1% for the forseeable future.

The Tiny Home Market
There is no census for tiny homes. In 2012, an estimated 1 percent of real estate sales came from tiny homes. It’s difficult to know how much this has grown in the years since, as the only available data is local and regional.

In New York City, only 2.1 percent of all real estate sales between 2010 and 2018 were tiny homes. In Chicago, tiny homes made up only one-tenth of one percent of all real estate sales during that time period. Escape Tiny Homes, however, reports seeing a 200 percent increase in business over the past several years.
Sales estimates for tiny homes range from around 2,000 per year on the conservative side to an optimistic 5,000 per year, although there are no definitive numbers owing to the differences.

The Imminent Boom
Economists and industry professionals predict the tiny house market will rapidly expand once again in the next few years. Following the onset of COVID-19, many city dwellers fled to smaller towns and country homes. Real estate specialists expect more potential homebuyers will be likely to invest in their property, eager to keep their neighbors at a distance; they also project that more new homeowners may purchase or build their home earlier than they originally budgetted for.

For many, this will necessitate buying and building smaller, more energy efficient homes.

• A 6.25% projected market growth will see its largest share in North America.
• The current compound annual growth rate is almost 7%.
• The environmentally-friendly nature is a key driving factor in market growth.
• Incremental growth is expected to reach $5.8 billion over four years.

Should I Move to a Tiny Home?
There is no consensus among experts as to whether tiny homes are “worth it” or not. Critics of tiny homes point out the hidden price of tiny living that catches so many new homeowners off-guard. Some tiny home dwellers are unprepared for the daily reality of living in such a small space.

The most unexpected drawbacks tend to be financial. This is partially due to the assumption that a home that is 1/8th the size of a traditional home will also be 1/8th of the cost of a traditional home. Another key component of the fiscal drawbacks is the unpredictability of the tiny home market; some of this may diminish with the rise of tiny homes’ popularity that industry experts expect.

Trouble Getting Financed
If you don’t have a large amount of savings or items you can easily convert to cash, a tiny home might not be for you. There are very few mortgage companies that are willing to take on the risk of a tiny home, especially if you plan to build it yourself. While you may be able to get a personal loan, many companies are leery of pouring resources into such a niche market.
Insurance

Not all insurers are willing to insure a tiny home, especially if you build it yourself. Some tiny house owners have been fortunate enough to get RV insurance for their portable tiny homes; the process is a difficult one, but not as difficult as ensuring your your tiny home if it’s built on a permanent foundation.

A Place to Park
ou may also need to add in the cost of renting or buying land on which to place your tiny slice of paradise. While your tiny home may have only cost you $35,000, land to put it on could cost you another $35,000 or more. Additionally, zoning laws in your area may make it difficult to buy land for your tiny home’s permanent foundation, and some areas will not allow you to permanently park a portable tiny home within city limits.

Personal Space
Interestingly, a third of American homeowners said their biggest home-buying regret was not purchasing a larger home. It’s easy to underestimate the amount of personal space we each feel comfortable with and to romanticize tiny living without thinking about the realities of space constraints. There isn’t much privacy in a tiny home, and you may not have any space you can call your own in a home that only has 400 square feet to share. Families with children may feel especially cramped in such a small space day after day; one reason tiny homeowners gave for moving back into a larger home was needing more space for their children.

Your Hobbies
Maybe your house is purged down to the bare necessities and you’re ready to go all-in on tiny living. But what about those golf clubs for your weekly trips to the course? Or all your fishing gear? Or those DIY projects taking up space in the garage that take up your weekends? You might need to consider renting storage units for anything that doesn’t fit in your tiny home. This is an extra expense to take into account, as well.`

Looking Ahead: Coming Trends
While tiny homes will probably never be as popular as the average-sized home, they are sure to become more popular with two key groups. These groups will drive the future of the tiny home market in terms of demand and in terms of production.
Boomers and Millennials Will Drive New Tiny Home Sales
Because of the large numbers of Baby Boomers who are set to retire, and the Millennials’ debt, those two groups are projected to have the greatest impact on sales of new tiny homes for the foreseeable future.

Baby Boomers are likely to consider tiny homes for several reasons:

• Downsizing after retirement to a smaller space.
• Wanting to reduce expenses (dumping that mortgage) to enjoy their retirement years with less (or no) debt.
• With the ease of portability, boomers can travel to see grandkids or just go exploring with their tiny homes in tow.
• They may even be buying tiny homes to use as mother-in-law suites on their children’s or grandchildren’s property.
• For Millennials, tiny homes provide the opportunity to actually own a home in a real estate market where many are either priced out or can’t get approved for a mortgage due to their debt load.

However, there is one caveat for the tiny home industry when it comes to Millennials: they tend to view tiny homes as a temporary option, just one step on the ladder to “real” homeownership, hoping to eventually graduate from a tiny home to a regular-sized one.

Tiny Homes Will Continue to Grow in Size
Tiny home builders across the board reported that new tiny homeowners want bigger tiny homes. The most common size for a tiny home at the beginning of the decade was 20 feet long by eight feet wide, for a total of 160 square feet. Twenty years ago, that was even smaller, at nine by ten feet, for a total of 90 square feet of livable space.

Now the standard size is 28 feet in length, with some buyers asking for 30 to 40 foot long tiny homes. A 28 foot by nine foot tiny home is 252 square feet—nearly triple the norm from twenty years ago and more than one and a half times the square footage of tiny homes from a decade ago. These are, of course, still tiny, but creeping up in size.

Tiny Homes Will Become More Luxurious
Professional tiny house builders have noticed an uptick in customer requests for high-end finishes and standard-sized appliances in their tiny homes, and even king-sized beds. Many tiny homeowners feel that if they’re giving up living space, they want to treat themselves with luxury finishes and things they otherwise couldn’t afford to do in a larger home.

Some tiny homes are limited in the amount of luxury they can handle. Heavy items such as marble, granite, and stone tile may put too much weight on a trailer for portable tiny homes. Those kinds of upgrades are for tiny homes that are built on actual foundations and aren’t intended to be moved.

Tiny Homes Will Be Second Homes
More and more people are beginning to buy tiny homes to use as rental properties and sources of income. In fact, one company was designed around that exact premise; Getaway built multiple tiny homes in the wilderness and rents them out to urban vacationers looking to get away from the city. They’ve made enough profit that they’re looking to expand their business to 30 new markets within the next year or so.

Other homeowners, tired of renting other people’s properties, will buy tiny homes to use as their own permanent vacation homes, giving them the additional freedom of being able to visit whenever they want instead of having to schedule their time. This is already happening in some areas and seems to be where the tiny home movement is heading—away from primary residences and more toward the second home/vacation rental industry.

Towns and Cities Will Become Tiny Home-Friendly
This is already beginning to happen in certain states around the country, with Spur, Texas being the first city to declare itself tiny home friendly. Several other cities have been working on removing size restrictions from their zoning laws to allow for the building of tiny homes.

The darkest states on the chart are the friendliest toward tiny homes, many creating special laws or setting aside land specifically for tiny homes and tiny home communities. Most of the states embracing tiny homes are western: Texas, Colorado, Nevada, Nebraska, and South Dakota. Michigan, Maine, and North Carolina rounded out the friendliest states for tiny homes.
The pale orange states are among the least friendly, several with laws specifically prohibiting or severely limiting tiny home construction or permanent placement of tiny homes.
Interestingly, Alaska and Montana, two states that seem to prize independence and living off the land, have the most anti-tiny home legislation, along with Mississippi, Alabama, Arkansas, Ohio, New York, Connecticut, and New Jersey.

In Summary
While tiny homes may never grab a large share of the real estate market, they’re perfect for the right buyer. Just be sure before you buy one that you’re prepared for potential obstacles along the way, you’re really ok with the loss of personal space, and that you’ve done your homework on builders/DIY kits, and locations to park/pour a permanent foundation.
Sources

1. Reader’s Digest, “9 Hidden Dangers of Owning a Tiny Home.”
2. Wikipedia, “Tiny House Movement.”
3. Tiny Home Builders, “5 Signs You’re Not Ready to Go Tiny.”
4. CNN Business, “Demand for Tiny Homes Is Getting Bigger.”
5. Tiny House Society, “Tiny House Statistics.”
6. Curbed, “Tiny Houses: Big Future or Big Hype?”
7. The Mortgage Reports, “Are Tiny Homes on Trend? Data Shows They Might Not Be So Practical After All.”
8. Buildium, “Is the Tiny House Movement a Passing Trend…Or a Glimpse Into the Future?”
9. Realtor.Com, “As Tiny Homes Spread Across the Nation, They’re Getting Bigger–and Pricier.”
10. Go Downsize, “Where Can I Build a Tiny House? (Laws by State)”
11. The BBC, “The ‘Dirty Secrets’ of Tiny Houses.”
12. Business Insider, “Living in Tiny Homes Was Much Harder Than These People Realized.”
13. U.S. Census, Characteristics of New Housing
14. Some People Choose Tiny Houses to Save Money, but They Might Not Always Be the Bargain You’d Expect
15. How Much Does it Cost to Build a Tiny Home and Maintain It?
16. Tiny Houses Not a Big Enough Solution
17. Off the Grid Capitals of America
18. Tiny Homes: A Guide to Understanding the Tiny Home Movement
19. COVID-19 Impacts: Tiny Homes Market Will Accelerate at a CAGR of Almost 7% Through 2020-2024