Should Builders Consider Tiny Homes? | 2-10 Blog

Do Tiny Homes Make Sense for Builders?

Tiny homes have been all the rage in recent years, but are they a worthwhile business endeavor for residential builders? Read on to learn about the pros and cons of building tiny homes.

Where it All Began

Tiny homes started as a movement among Americans who sought to rebel against modern consumerism and retreat to simpler ways. As these homes became more popular, however, buyers began seeking larger models with contemporary comforts and refined design features.

When this demand began growing, builders started entering the supply chain. At the same time, lenders became more open to helping buyers secure loans for smaller properties.

These days, some builders work exclusively in the tiny home market, building entire tiny home communities that cater to budget-conscious buyers. While it can be a profitable endeavor, tiny home building does have its drawbacks, especially for builders who are accustomed to building traditional or luxury homes.

Small is Growing

According to Realtor.com, tiny homes aren’t so tiny anymore. Over the past several years, builders have endured square-footage creep, as buyers have begun demanding more for their money. The typical tiny home used to be approximately 20 x 8 feet. Nowadays, homeowners are routinely asking for 30-foot plans.

The actual cost of building a tiny home has also grown, thanks to the rising cost of land and increasingly unfriendly local zoning laws. From the perspective of many builders, it makes more sense to fill smaller lots with vertical homes that have two or more floors.

Less Opportunity

As professional builders entered the market, the average price for tiny homes stabilized at about $70,000. Anything more than that usually involves customized features, which can extend prices up to $200,000. Since smaller homes require lower material costs and fewer man-hours, builders can see good profits. That said, they must also factor in potential losses when assessing overall opportunities for maximizing profitability.

Throughout America, builders are facing continuing lot shortages. According to the National Association of Home Builders, more than 60 percent of builders report lot shortages in their areas, while over 20 percent report extremely low numbers of available lots. The lingering lot supply problem is particularly severe in relation to starter homes.

Since lots can be so difficult to come by, many builders prefer to use creative design strategies to build traditional homes on small and challenging lots. Instead of constructing a tiny home on a small piece of land, builders can take an upward design approach that features a basement level with a living room, vaulted open spaces for socializing and relaxing, and bedrooms on the upstairs floors. By building vertically, builders can also maximize privacy and comfort while using available space more efficiently.

With that said, there are instances where tiny homes do make a lot of sense for builders. Since many buyers are looking at tiny homes as affordable vacation cottages, builders should consider tiny homes as lucrative possibilities in scenic or relatively remote regions where people seek to get away from the noise and commotion of metropolitan areas.

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