The Tiny House movement is a fascinating, and unexpected, trend. In hindsight, it’s a perfectly rational response to the 2006 real estate bubble, and the 2008 recession. If only the world were completely logical.
During the US and European real estate bubble, everybody thought they would make a ton of money with minimal effort, the American Dream. All you had to do is flip a few properties, then you’re living in a mansion, mortgage free, paid for with the profits. The madness of crowds took over, I don’t think many people realized that they were selling their souls to the devil banks.
They did this willingly, even eagerly. It was all about owning ever bigger and more expensive houses.
But there was a problem with that dream. The easy money evaporated. And it turned out that owning bigger and more expensive stuff did not make you happy. It did make quite a few people bankrupt, and put a few million others underwater financially.
If you follow the Tiny House blogs and articles in mainstream media, there is one comment that surfaces over and over. “I’m debt free.” It’s amazing to me that this idea has taken hold, in spite of massive efforts by the Federal Reserve to lower interest rates. That cheap money is a necessary function to get people back into debt and buying houses.
Our economy has been based on the concept of buying expensive stuff. Citizens need to keep buying that expensive stuff with borrowed money. That way, people keep paying the banks rent on that borrowed money forever, and ever, and ever.
There are a few folks who are opting out of that system. A few people are choosing to live small and simplify their lives. They are not selling their souls to the banks in search of the McMansion.
Don’t think for a moment this is a trend. These folks are pioneers, going completely opposite the trend. Small houses, less than 1400 square feet, are now less than 4% of new construction. That’s down from 9% as recently as 2005. In 2013, mega homes, 4000 sqft and larger made up 9% of the market, up from 6.6% in 2005. So if you believe the trend is to smaller, simpler and greener, you are completely wrong.
Keep in mind, these real estate trends are set against a backdrop of the smallest labor participation rate in decades. A time when college graduates have massive school loans to repay, and not the best chance of finding a great job in their chosen field. Robots and algorithms continue to take over jobs, so not much hope of that situation getting better in the future.
In spite of all this negativity, builders continue to build McMansions, just not in the numbers seen during the 2006 bubble. At the same time, the Tiny House phenomena seems to be gaining traction. There has to be a void forming somewhere, and just about the only place left is the middle. The Millennials that have jobs don’t seem to be buying the small, traditional starter homes. Shouldn’t be a surprise, there are roadblocks to overcome.
It’s difficult to impossible to get loans for small houses (500-1400 sqft). The cost per square foot is higher, and the market is much smaller. Builders don’t like building them because they’re not profitable. Plus, many new housing developments are deed restricted to houses with a large footprint. The alternatives are condos-townhomes, or buying in older neighborhoods with older and smaller homes. Older homes are likely to need extensive renovations to provide the features people from the wired generation want. Spending nights and weekends doing renovations, probably not the ideal lifestyle for 20 somethings.
The Millennials are mostly renting, why?
Urban apartments have the desired amenities, such as charging for electric cars, gyms or fitness facilities, close to movies and other entertainment, good cell phone coverage and broadband internet access. Plenty of Wi-Fi hotspots.
A sense of community. Culture and nightlife are key. Opportunities to meet people. Choices when it comes to cuisine. There may be parks, jogging trails or other recreational areas nearby.
Flexibility. In today’s uncertain job market, being tied to a piece of real estate and the mortgage that comes with it creates problems if another career opportunity becomes available. Less stuff equals less baggage.
Time and Convenience. There is a lot of work and expense in maintaining a suburban home, from mowing the lawn to cleaning a larger space. The millennial generation is more likely to be single, so space for raising a family is less important. In walkable urban areas, shopping for groceries and other day to day items is easier.
So where do Tiny Houses fit in?
They are on wheels. Means if there is a job opportunity somewhere else, you just pack up and go. Also, since they are classified as RV’s by most municipal authorities, they avoid building codes. A Tiny House does not usually require a loan, so no long term commitment. Cost for heating and cooling is low, and maintenance is reasonable. Another point, often missed, is that each one is hand built and unique. They are customized to each individual’s needs. It is a personal statement.
My thinking is that Millennials will be attracted to them as a temporary place to live. More expensive than going back to their high school bedroom, but it offers more privacy and a sense of ownership. The Tiny House doesn’t have the stigma of a trailer park. Once some level of job security is achieved, many will move to more conventional housing. It could be that delaying that a home purchase is a counterpoint to the trend of postponing marriage.
Some older people living in a big empty next may find Tiny Houses a good alternative. It lets them travel and enjoy life.
But I suspect most folks who adopt this lifestyle do it mainly for the freedom. Free to try alternative lifestyles without having to mow the lawn every week. The ability to simplify life and stop spending all your money collecting stuff.
I suspect the Tiny House movement might be an indicator of a larger trend toward more responsible living. It’s not just about money. Part of it is rebellion. Dropping out of the consumer culture, living a simpler, and greener life might be considered food for the soul.