Tiny houses are more popular than ever, but they’re not the bargain everyone thinks they are

tiny house
The pandemic further fueled the popularity of tiny houses, sending a boom in sales.

In a time when space is the ultimate luxury, tiny living is still going strong.

The tiny house movement burgeoned in the last decade, as mostly young 20- and 30-somethings opted for the minimalist life that came with living in a house smaller than 600 square feet on wheels. The pandemic, as with most things, accelerated the trend.

In 2018, 53% of Americans said they would consider living in a tiny house in a National Association of Homebuilders survey. By late 2020, 56% of Americans said the same in a poll conducted by financial company IPX 1031.

This interest created a boom in tiny house sales last year, Insider’s Frank Olito reported. Experts told Olito that the pandemic created a new market for tiny houses among those looking for space to work remotely or as a way to socially distance.

The tiny house has always been popular as a seemingly budget-friendly alternative to a single-family home, especially among millennials, who’ve had a notoriously hard time saving for a down payment thanks to many an economic challenge. During the pandemic’s housing boom, the generation’s need for more affordable housing became even greater as housing prices reached record-highs. Tiny houses presented an answer.

But they aren’t quite the bargain everyone thinks they are. Just as was the case with the national real-estate market, outsized demand and a serious supply shortage made tiny houses more expensive during the pandemic. It’s even worse when you look at the fine print.

Tiny houses are still way more affordable upfront than the typical home, which sold for $403,000 at the end of the fourth quarter, per Fed data. But that typical home is also 1,900 square feet, according to Porch.com, compared to 225 square feet for the typical tiny house that was sold. That means tiny houses, which typically sell for $52,000, are 62% more expensive per square footage, even though they are eight times smaller.

That trade-off says a lot about America’s housing crisis right now. Americans are so desperate for an affordable house they’re willing to pay a 60% premium.

Here’s how things got so bad.

Tiny houses technically cost more for less space

Tiny houses aren’t always cheap. You might be able to find a do-it-yourself tiny house kit on Amazon for $19,000, but some more complex models can start at $180,000.

They’re also pricier than they used to be. Lindsay Wood, who runs a tiny-house consulting business, told Olito she’s seen prices increase drastically in the past year. She said that one to two years ago, a common 8-by-24-foot tiny house went for about $50,000. In 2021, it’s more like $65,000 to $75,000.

The pandemic hasn’t helped. Exploding demand clashed with limited lumber production, sending lumber prices skyrocketing. It’s affected houses of all shapes and sizes.

tiny cabin
When it comes to space, tiny houses aren’t always a bargain.

Nick Mosley, owner of tiny house building company California Tiny House, told Olito earlier this year he was buying beams that once went for $2.50 each for $7.50 each. It’s not just lumber: His supplier for the trailers, the foundation for tiny houses, increased its costs by 5% in 2021 to compensate for an increase in steel prices from their supplier.

“Materials costs nationwide are increasing, and that’s driving up costs on a lot of tiny-house builders,” Mosley said, adding: “The only way not to lose all the money we are paying out to meet material increases is to increase our prices too.”

A tiny house is still a house, after all, subject to the same cost pressures and problems with demand and inventory. What it means is that the housing crisis has become so bad that it’s pushed some people to pay more for less space, even if the overall cost is more wallet-friendly than paying less for more space. In turn, the demand for the tiny house market is creating the some of the same problems that the national housing market is seeing.

When you add it all up, the tiny house just isn’t much of a bargain.

Millennials can’t afford real houses

Even before the pandemic, the seeming affordability of a tiny house was a big part of the appeal for many millennials.

“People love tiny houses because the McMansion died,” Melissa Juszczak, who helps run Think Big! A Tiny House Resort in New York’s Catskills region, previously told Insider. “Millennials can’t afford mansions.”

Tiny houses, she added, are generally more affordable for millennials. Her mother, Margie Juszczak, who also runs the tiny house resort, seconded her sentiment. She said that while her generation was able to buy houses in the suburbs, millennials don’t quite have the same opportunity, often because they’re shouldering massive student loans.

tiny house
Millennials love tiny houses partly because they seem a more affordable option than regular houses.

Staggering student-loan debt, coupled with a higher cost of living and the lingering fallout of the Great Recession, have proved to be big roadblocks to millennials’ ability to afford a home. At first, 2020 seemed like the year that could all change.

Millennials reached peak age for homeownership and aged into financial stability. Coupled with record-low interest rates, they were ready to buy a home. But such hot millennial demand exacerbated an already shrinking inventory of homes, thanks to years of underbuilding since the Great Recession, the pandemic itself, and a historic lumber shortage.

They soon found themselves facing their second housing crisis in a dozen years, staring down a cutthroat and overpriced housing market. It’s pushed them into more affordable solutions to fastrack their path to homeownership, like buying a fixer-upper or a tiny house. More than three-quarters (86%) of first-time homebuyers – many of whom are millennials – said in the IPX 1031 poll that they would buy a tiny house as their starter home.

Now, finding a shortcut to homeownership isn’t the only explanation for tiny-house popularity. Many tiny house dwellers genuinely prefer a more minimalist lifestyle or the ability to live a nomadic lifestyle while working remotely, so the trade-off isn’t a sacrifice to them. And some tiny house owners also own an actual home, using their tiny house for office-like purposes.

The tiny house boom is like the real-estate market in miniature. It’s leaving aspiring homeowners with no option but to get creative, and it’s coming at a big cost.

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Americans are binging on big houses, and it’s locking millennials out of the housing market

couple standing in front of new home

If you’re a millennial or a first-time buyer excited to purchase a starter home, you’ll probably have trouble finding one. Not only are starter homes at a 50-year low, but the size of the typical American house getting built is bigger than prior decades, which suggests starter homes aren’t just low because of supply and demand. Not enough are being built.

The US has been underbuilding for years and not keeping up with buyer demand, but less of the small starter home is being built as well.

“Due to supply-side challenges, including higher regulatory costs and limited lot availability, it has been relatively more difficult to build entry-level homes over the last decade,” Robert Dietz, chief economist for the National Association of Home Builders, told Insider in an email. “In fact, due to these factors, new home size increased between 2010 and 2014. For entry-level buyers, these factors have made homebuying more difficult by limiting available inventory.”

According to Freddie Mac data as reported on by the Wall Street Journal, there are fewer entry-level homes – homes of 1,400 square feet or less – than in decades. In fact, they have declined each decade to their current five-decade low. Per Freddie Mac’s analysis of Census data, the average number of entry-level homes built per year has declined from 418,000 in the late 1970s to 55,000 in the 2010s.

This could be bad news for millennials, as Freddie Mac notes in a May 2021 report that the generation is “at their peak first-time homebuying age.”

“We’ve got a record number of entry-level, demand buyers: the millennials coming into the market,” Sam Khater, Freddie Mac’s chief economist, told the Wall Street Journal. “And yet we’ve had a seven- or eight-year decline in entry-level homes, and that’s not going to change.”

Looking across two decades’ worth of data, supply for single-family starter homes has gone down. The following chart shows starter homes built as a percentage of total single-family homes completed.

Insider’s Taylor Borden reported that entry-level homes are great for millenials looking for something affordable, as this generation holds less wealth than their parents did at their age, but there aren’t a lot to go around these days.

At the same time, the floor area of homes being built has climbed from previous decades, although it’s gone down in recent years. The median floor area of a single-family home completed in 2020 was 2,261 square feet, per Census data.

As seen in the above chart, single-family homes have increased in size from previous years but dipped since 2015. Rose Quint, NAHB’s assistant vice president for survey research, previously told Insider this is because homes “reflected the preferences of those buyers that were still in the game.​​”

Based on Census’ housing characteristic data, 32% of the 912,000 single-family homes built in 2020 were 1,800 to 2,399 square feet, while entry-level homes made up only 7%, or 64,000, of single-family homes completed.

While the square footage of homes has climbed, lots have become smaller. A post by StorageCafé based on housing data from the Census said the typical American house is 4% bigger than 10 years ago, but the typical lot size is about 18% smaller. Lot sizes do vary, though, with Indianapolis having the largest lot size among the 20 largest US cities, per StorageCafé.

“The high demand for new housing in urban hotspots, low availability of land in those areas, growing construction costs, and Americans’ preference toward larger homes all converge, resulting in large new single family homes that make the most of their land plots,” Maria Gatea, STORAGECafé senior editor, told Insider in an email, noting median home sizes in these 20 cities have increased. “This means that first-time homebuyers have to compromise for space and move further away from downtowns.”

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The ‘Great American Land Rush’ is wiping out the starter home

starter house
Millennials can barely get their hands on a starter house.

  • The number of starter homes on the market sits at a 50-year low, per Freddie Mac data.
  • It’s not good news for millennials, many of whom are first-time homebuyers fueling a housing boom.
  • A housing expert recently told the WSJ that it’s creating a “Great American Land Rush.”
  • See more stories on Insider’s business page.

Starter homes are running dry, and it’s a big pain for those who need them most – millennials.

The generation, which turns ages 25 to 40 this year, has reached peak age for first-time homeownership. More millennials became homeowners than any other generation in 2020, driving a yearlong housing boom.

But this increased demand from millennials in an era of remote work, coupled with a lumber shortage and the fact that contractors have been underbuilding over the past dozen years, has exacerbated a shrinking housing inventory, with record-high prices for remaining houses.

As bidding wars rife with all-cash offers and higher down payments heat up the market, many millennials face the second housing crisis of their adulthoods.

There have been 20 times fewer homes built in the past decade than in any decade as far back as the 1960s, Daryl Fairweather, chief economist at Redfin, previously told Insider. Data from Freddie Mac shows that the housing shortfall has led to a decline in entry-level homes – the ones most affordable for millennials.

Freddie Mac defines an entry-level home as one under 1,400 square feet. Its data reveals that the current supply sits at a 50-year low. In the late 1970s, about 418,000 entry-level homes were built on average per year. In 2020, only 65,000 entry-level homes were built, even though 2.38 million first-time homebuyers purchased a home that year.

“There just aren’t enough of these homes to fulfill the demand,” Ed Pinto, director of the American Enterprise Institute, recently told The Wall Street Journal. “It’s creating this ‘Great American Land Rush,’ as I call it. People are moving around and there’s tremendous demand, but the inventory is down.”

The fall of the starter home

Housing was largely an out-of-reach dream for millennials for years. Even before the pandemic, they were struggling to take advantage of historically low mortgage rates as soaring living costs, student debt, and the fallout of the Great Recession made saving up for a down payment difficult.

They were already contending with a dwindling starter home supply back then.

In 2018, starter homes represented just 20.9% of available housing inventory in the US, according to Trulia. And a Realtor.com report at the end of 2019 predicted that while low interest rates would make it easier for millennials to buy, a shortage of entry-level homes would prove to be a major obstacle, largely because newbuilds that year were mostly devoted to “upper-tier housing” that cost at least $500,000.

Real-estate investors were only making the problem worse. In 2018, they bought roughly 20% of US starter homes – twice as many as they did 20 years ago, The New York Times reported, citing real-estate data provider CoreLogic.

Now, the pandemic and its consequent recession have added fuel to the fire just as millennials were finally recovering from their accumulated economic woes. “Now that they have economically recovered and are looking to buy a home for the first time, we’re faced with this housing shortage,” Fairweather told Insider. “They’re already boxed out of the housing market.”

Are you a millennial feeling shut out of the housing market? Email this reporter at hhoffower@insider.com.

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Millennials are about to get screwed yet again if Biden doesn’t cancel student-loan debt

student debt millennials
If Biden doesn’t cancel student debt, millennials are in store for another economic challenge.

Millions of Americans have enjoyed a reprieve from the squeeze of student debt during the pandemic. But, come fall, the student-debt crisis could pick up where it left off – or snowball into an even bigger problem.

The pause on student-loan payments and zero interest accrual that have been in place since March 2020 will lift at the end of September. When it does, borrowers will be paying 1% more in interest than they did in 2019. Although rates are still relatively low compared to previous years, Forbes reported that the new interest rates will cost borrowers as much as an additional $590 per $10,000 borrowed on a 10-year repayment term.

The impending lift on the payment pause, coupled with rising interest rates, doesn’t bode well for millions of borrowers, who have been able to stay financially afloat during the pandemic without the burden of paying off their student-loan debt. That’s especially true for millennials, for which student-loan debt has been one of many balls in a long-time juggling act of financial challenges.

Many have been hoping they wouldn’t have any student-loan debt at all come fall – or at least, a much lighter load.

Joe Biden campaigned on supporting $10,000 in student debt cancelation per person, but since becoming president, he’s given no clear timeline for doing so. He hasn’t included his campaign promise in his stimulus plan, infrastructure plan, or his budget, and has resisted calls from Democratic lawmakers to cancel up to $50,000 per person using his executive powers. While he released a regulatory agenda on Friday that plans to improve student-loan forgiveness programs by 2022, it’s not the immediate relief Democrats are looking for, and its details are vague.

Millennials have had bad economic luck. They’ve ventured through one financial woe after another since the oldest of them graduated into the dismal job market of the 2008 financial crisis. A dozen years later, many are still grappling with the lingering effects of The Great Recession, struggling to build wealth while trying to afford soaring living costs for things like housing and healthcare. The pandemic threw yet another wrench into their plans by giving them their second recession and second housing crisis before the age of 40.

And the generation has dealt with all of this while shouldering the lion’s share of student-loan debt. If Biden continues not to act on debt relief, the student-loan crisis has the potential to intensify, adding to the pile of millennial economic challenges.

Student debt has left a stain on millennials’ adulthood

Forty-three million borrowers currently share the $1.7 trillion of national student-loan debt. As of 2019, the 15.1 million borrowers ages 25 to 34 – a large chunk of the millennial population – owed an average of $33,000.

The burden is so great that it’s prevented many millennials from achieving life milestones like buying a house, having kids, or moving to their dream city.

“I still haven’t been able to save enough to put a down payment on a house and commit to another 30-year loan,” Daniela Capparelli, who graduated with $150,000 debt, told Insider in the beginning of 2020, when she was 35. “I often feel like I already have a mortgage without the house.”

student graduate
Student debt has been one of millennials’ many economic woes.

Read more: Millennials are finally catching up in earnings and homeownership, but student debt is keeping the generational wealth gap as vast as ever

Student loans are also keeping the generational wealth gap as vast as ever. If student loans didn’t exist, millennials ages 28 to 38 would have a 76% net wealth-to-income ratio, higher than their current 56% wealth-to-income ratio, per a report by the Center for Retirement Research at Boston College.

For the millennials who have found themselves at the bottom of the intragenerational millennial wealth gap that the pandemic has exacerbated, student debt is especially painful. This group was more likely to already have lower earnings pre-pandemic, and to burn through savings when hit by unemployment or pay cuts.

The pause in payments has been a temporary solution to the nation’s debt burden. Borrowers have saved $2,000 on average in interest during this time, per a report by travel research group Upgraded Points which also noted, “while those couple thousand dollars could have been imperative in keeping borrowers in the black during pandemic-related hardships, these borrowers are still far from climbing out of the holes they dug in college.”

When the pause lifts, it has the potential to leave struggling millennials feeling more slammed with student debt than before, after a year spent falling further financially behind on other areas.

Biden has canceled billions of student loans that are only 0.2% of the total

Now, Biden has taken some steps toward student-loan debt assistance. He extended the payment pause, which was set to end in January, through September 30. And, through the Department of Education, he cleared up billions of dollars in debt in just a few months for borrowers defrauded by for-profit schools and borrowers with disabilities.

But, as Insider’s Ayelet Sheffey reported, this still left trillions of outstanding debt. Alan Collinge, the founder of Student Loan Justice, told her that compared with the scale of the student-debt crisis, canceling debt for defrauded borrowers and borrowers with disabilities is “massively unimpressive.”

“We’re in a pandemic, and we’ve lost tens of millions of jobs,” he said. “The people who are hurt the worst tend to be the people who have student-loan debt.”

student loan debt college
Millions of borrowers are waiting for Biden to fulfill his campaign promise of cancelling $10,000 in student debt per borrower.

Read more: The case for cancelling student debt isn’t political – it’s practical. Here are the benefits of erasing $1.6 trillion, no strings attached.

So far, $2.3 billion in student debt has been cancelled – only 0.2% of student loans swimming through the system.

In February, he effectively rejected a plan put forward by Sens. Elizabeth Warren and Chuck Schumer to wipe out $50,000 in student-loan debt per borrower.

“I will not make that happen,” he had said to a CNN town-hall audience, adding that he believed loan forgiveness depends on whether borrowers attended a private or public college. “I’m prepared to write off $10,000 in debt, but not 50. I don’t think I have the authority to do it.”

Both Democrats and cities have urged Biden to cancel $50,000 in student debt per borrower, arguing that it would provide immediate relief to borrowers if Biden used his executive authority to do so. But there’s a discrepancy among Biden and lawmakers on whether he can actually use his executive powers to cancel debt.

He told The Washington Post that it is “arguable” the president can use executive powers to cancel student debt, and he would be unlikely to do so. That means the status of the cancelation of a minimum of $10,000 of debt remains in Congress’ hands.

Student-loan forgiveness would be a ‘lifeline’ for millennials

Student-loan relief would benefit millions.

A Department of Education (DOE) analysis obtained by Yahoo Finance found that $50,000 in student-loan forgiveness per person would erase the entire debt for 84% of borrowers in the US with federal loans, while $10,000 in forgiveness would erase the entire debt for 35% of these borrowers.

That includes everyone from Gen Z to those over the age of 50. But millennials, facing one economic conundrum after another, have adopted new social norms to suit the times, hitting milestones like marriage and homeownership later than their parents, if they happen at all. The pandemic has created a whole new slew of crises for them that have exacerbated existing ones, student debt chief among them.

student debt
Student-debt forgiveness would help narrow the generational wealth gap.

Read more: College is more expensive than it’s ever been, and the 5 reasons why suggest it’s only going to get worse

Student-loan forgiveness was a top priority for voters in the election. If Biden doesn’t fulfill his campaign promise to relieve $10,000 in student debt, he’d be leaving the generation, many of whom were banking on him to absolve at least a portion of their biggest burdens, screwed yet again.

“We need some help, and that forgiveness, for a lot of us, would just be a lifeline,” Alexander Cockerham, 38, who took out $42,000 in federal in private loans to attend school, previously told Insider.

But the resumption of student loan payments is drawing near, with little to no action in sight. In early April, Biden’s chief of staff, Ron Klain, told Politico that the White House was “looking into” its legal authority to cancel $50,000 per person. Shortly afterward, the White House press secretary, Jen Psaki, said that option wasn’t being ruled out.

An Education Dept. spokesperson told Insider that the agency remains “committed to delivering” targeted relief to borrowers and helping all of them manage repayment, and continues to closely review data related to return to repayment. It is also working with the Department of Justice and White House “as quickly as possible” to review all student debt cancellation options. (The White House did not respond to a request for comment).

While cancellation doesn’t exactly need to happen before the pause lifts, it would be even more beneficial to borrowers if it did, helping them lower the amount they would pay interest on or even preventing them from ever having to pay again altogether. Education Secretary Miguel Cardona said in May he has not ruled out further extending the pause, but, again, no action has been taken yet to do so.

If Biden fails to cancel student debt, he’s sacrificing opportunities to help narrow the racial wealth gap, assist low-income borrowers, and boost the economy. For millennials, specifically, it would just be the latest way they can’t catch a break.

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