Tiny Homes Are Affordable When The Land Is Free

December 4, 2024
  • Tiny Home Solutions Gloss Over The Need For Land
  • Land Appreciates While Buildings Depreciate
  • Amazon Is Taking Over The Tiny Home Torch From Sears

When we think about the genre of tiny homes, as shown on television reality shows, no one speaks about the cost of land. Housing is experiencing a perfect storm. The median U.S. existing home costs $407,200. Rocket Mortgage suggests that tiny homes cost an average of $30,000 to $60,000. New home sales have been trending smaller in size for years, largely to improve affordability. In the early 1900s, Sears was the first large-scale innovator of the tiny homes genre with kits that could be ordered from their catalog.

An Inman News article: Tiny home with garage sells out on Amazon after Black Friday buzz. It sold out in a few days with a $14,000 price tag, roughly 300 square feet and it comes pre-wired with electrical and plumbing. Incidentally, a 300-square-foot Manhattan co-op studio apartment in a doorman building sells for about $400,000. Of course, the higher price reflects the pro rata share of the land the building sits on. So “yes” the cost of a tiny home can be a lot cheaper if you skip over the land cost.

“At $13,678, the home offers an affordable solution for full-time residents or an addition to an existing property — potentially saving thousands in construction costs. The home is also suitable for commercial use, according to Amazon.”

These tiny homes could be used as extensions to existing homes or an ADU, but for use as a stand-alone home, it gets complicated and a lot more expensive.

The fact People Magazine covered this story and another story on the same day – that someone can build or buy a tiny home for an incredibly affordable price suggests a potential solution to the affordability crisis. Yet all coverage on this topic seems to skip over the actual expensive part – the land needed to locate the tiny homes.

As I’ve said here many times, land appreciates and houses depreciate. The surge in housing prices of late is largely attributable to the rising cost of land and to a lesser extent, the cost of labor and materials, despite supply chain problems and labor shortages.

Gotta love seeing a BMW in the model photo of a tiny home.

Source: Inman News

Land Is Where Most Of The Home Value Is

In reality, tiny homes are perfect as accessory dwellings (ADUs) or other situations where the buyer already owns the land where it would be located. I wrote about the value of land a decade ago as an Op-Ed columnist for Bloomberg: Housing Bust Wasn’t About the House for which I created one of my favorite charts.

Source: Bloomberg Opinion

When I co-founded our real estate appraisal firm Miller Samuel in 1986, I recall that suburban land in our town located outside of NYC was about 30% of the total property value. Today it is well over 60% because the land value appreciated significantly – about $1.5 million per acre.

Today’s Home Containers Are As Solid As Sears

A quick search on Amazon yields a slew of tiny container house choices – the selections are much more than glorified “she sheds.”

Sears began selling house kits in the early 1900s, similar to the tiny container house trend that is happening now. And the same concept applied – the buyer needed land on which the home was to be built. That’s never discussed in the Tiny House reality shows.

Final Thoughts

Home values are significantly comprised of the value of land – that’s what appreciates. Tiny Homes offers an affordable solution for ADUs and existing home extensions. The affordable housing discussion doesn’t seem to include the cost of the land that needs to be acquired to have one of these homes. In reality, the key driver of the lack of home affordability is the high cost of land.

Many dream of “getting away from it all” to “shed” (sorry) our materialistic lives. I will always remember what the late Norm Macdonald said.

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