Why a Tiny House Might Not Be As Affordable As You Think

Why a Tiny House Might Not Be As Affordable As You Think

Tiny houses — typically defined as any primary dwelling under 46 sq km in size (the average tiny house is about 21 sq km) — have been a thing for a while now. There are even entire TV reality shows dedicated to folks searching for, building, and buying tiny houses. The concept is often sold on two basic ideas: Simplicity and minimalism, because tiny houses require less space and resources and lend themselves naturally to a minimalist lifestyle (because there’s no room for a collection of junk), and cost, because tiny houses are a lot cheaper than more traditional homes.

And that’s true — the average cost to build a tiny house is about $US45,000 ($62,469), compared to about $US280,000 ($388,696) for a traditional home. That’s a lot of cash! And it’s one reason tiny homes are often pushed as a solution for cash-strapped folks looking for that starter home to get on the property ladder. Sure, tiny homes obviously have other challenges, including fitting your life into 21 sq km or sleeping in a tomb-like loft. But if you can finally call yourself a homeowner, it might be worth it.

Except for this: Tiny houses aren’t actually as cheap as you might think because there are a lot of hidden costs associated with them.

The hidden costs of tiny houses

If you’re thinking about going Tiny and squeezing your life into a more affordable, simpler space, don’t be dazzled by a sub-$US50,000 ($69,410) buy-in (which can be even less if you plan to build the house yourself; some kits can be purchased for less than $US10,000 ($13,882), with sweat equity making up the rest of the cost). No matter what the discrete cost of buying your tiny house might be, there is a long list of costs many people overlook until the bills come due.

  • Land. If you’re buying a tiny house on wheels, you’ll need to find land for it. This could mean purchasing a piece of property that’s zoned for the purpose, or spending on rent. This can dramatically increase the costs, but it might still be cheaper than a traditional home (the highest property taxes in the nation are just over $US9,000 ($12,494) annually, after all). Still, it’s an additional cost you need to keep in mind.
  • Contractor markups. If you’re hiring a contractor to build your tiny home, you might assume that a smaller home means smaller construction costs. And you would be very wrong about that. In fact, it can cost up to three times more per square foot to build a tiny house. This is due to both the challenges of building everything into such a small area and because contractors often pad their estimates to make a small job profitable for them.
  • Lack of financing. If you’re thinking you can buy a $US30,000 ($41,646) tiny house with $US6,000 ($8,329) down and a tiny mortgage (with a tiny monthly payment) you might need to think again — and come up with the whole purchase price. Most lenders consider a tiny house on wheels to be a recreational vehicle (RV), meaning you might need to seek an RV loan, which typically has higher rates. And tiny homes on foundations often don’t meet lenders’ minimum size requirements for a loan. You might be able to finance your home through a builder, but again, these types of loans often have higher rates.
  • Appliances. We tend to think that smaller things are less expensive things, but this isn’t true in the case of appliances. That’s because appliances designed for tiny spaces are specialised products. In a larger home, you benefit from a huge selection of standard-sized ovens, for example, but in a tiny home, you’ll have a much smaller selection. Plus, you won’t be able to just use appliances you already own if you’re living in a larger home currently.
  • New vehicle. If your tiny house is on wheels and you need to transport it — even if it’s just a few times a year — you might need to upgrade your vehicle to a truck with the correct hauling capacity. If that’s the case, consider that extra money part of your overall tiny house cost.
  • Insurance. It can be challenging to insure a tiny house, especially if you built it yourself from a kit — insurance companies expect professional standards in home construction and may look dimly on your efforts. While not having insurance on your home might save you money in the short-term, it means the cost of repairs or rebuilding will fall entirely on you, an enormous added risk. You can get homeowners insurance (or RV insurance) for a tiny home if you look around — but it may cost more than a traditional policy, because mobile tiny homes have a higher risk for damage, and many insurers consider tiny home policies to be a specialty product, and charge accordingly.
  • Higher cost of living. Everything from your utilities (especially if your house is mobile) to your laundry (if you don’t have space for a washer) can cost more in a tiny house, even if you have existing utility hookups on the land where you place your home. If you need to get water, sewer, and power lines run out to your location, it’s going to cost you a pretty penny too. And consider that money-saving strategies like buying groceries in bulk won’t work for you because you won’t have the storage spaceto take advantage of them.
  • Lower resale. One of the traditional selling points of home ownership is the way most property appreciates in value as you build equity. But tiny houses don’t always appreciate. If it’s not on a foundation, your tiny house may depreciate like a car does because of the perceived wear and tear. And even if it’s on a foundation, it may not gain value the way larger homes do. If you’re buying a tiny house because you think it’s the first step on the home ownership ladder, keep in mind it may not work out that way.
  • Storage costs. While many people think they’re ready for the minimalist life, people very often have no real concept of what that means — or what you’ll need to discard in order to fit your life into that tiny space. And if you’re not ready to part with your treasures, that’s going to mean another hidden cost for a storage option.

Tiny houses remain a good option for many people, both in terms of finances and lifestyle: Just be sure you know all the costs before you commit.

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