Are “tiny homes” a solution for housing affordability?

Another week, another spin piece about the benefits of “tiny homes” and why they offer a solution to Australia’s housing affordability crisis:

According to the Internation Residential Code (ICC), a tiny house is defined as a dwelling under 400 square feet (or 37 square meters). A standard home, by comparison, is roughly 2,500 square feet (230 square meters).

So basically they’re just smaller versions of houses, and they’re usually built with wheels and a trailer underneath so they can be moved like a caravan…

Sarah Rohdich, Co-Founder & Operations Manager of Häuslein Tiny House Co, said the demand for affordable housing, as well as the desire to live minimally with a reduced carbon footprint, has led to this increased demand…

Tiny houses can be a very cost-effective way of living: according to Ms Rohdich, you can buy a “very nice” tiny house for $100,000 – roughly 10 times cheaper than the median house price in Sydney and seven times cheaper than the median unit.

“A tiny house is in many ways a ‘common sense’ investment, especially with the Australian housing market as it currently is, and particularly for those looking to break into property ownership without bearing the burden of a draining 30 year mortgage,” she told Savings.com.au.

“To begin with, a tiny house has a much smaller overall price tag, enabling owners to become debt free in as little as three-five years.

“And in a short space of time, a large percentage of their income will be freed up to pursue other things.”

A high-end tiny house can be bought for what amounts to a 20% deposit on a Sydney home.

She also said the savings on principal and interest repayments are gigantic.

“According to data from the ABS and Core Logic, someone with a standard house or unit in Sydney is probably making monthly repayments of $2,200 on their $500k mortgage,” she said.

“And at that pace, they will chip away at repayments for as long as 30 years. By comparison, if you paid $2,200 per month on a $100k tiny house you would have it paid off entirely in under 4 years.

“The total interest repaid on the mortgage over the course of the loan could buy two-three tiny houses.”

The above dodgy calculations conveniently exclude the most expensive cost of Australian housing: the land. The land component typically accounts for more than two-thirds of the value of Australian housing, as illustrated below:

A fairer comparison would have been to compare the cost of a ‘tiny home’ (read caravan) to the build cost of an entry level house.

And herin lies the great ruse of tiny homes. There is no “property ownership” because there is no land title. They are effectively caravans. And caravans have already been used for generations to house the poorest members of society in ‘caravan parks’.

Caravans have only recently been rebranded as ‘tiny homes’ to make them sound trendy and cute, and to remove the negative stigma associated with living in a caravan park (e.g. being called ‘trailer park trash’).

The emergence of tiny homes as a ‘solution’ is proof that Australian housing policy has failed. They are a marketing gimmick to divert attention away from genuine housing affordability measures, including:

  • Curbing generous tax breaks for property investors;
  • Slashing immigration levels;
  • Removing artificial restrictions on land supply;
  • Boosting investment in public housing; and
  • Making tenancy laws more secure.

Fix these before stuffing Australians into caravans.

Comments

  1. Tiny homes are the same concept as ‘tiny cars’.

    Imagine, 150cc engines with 2 seats and no safety features… because a Hyundai i30 was now priced at $130,000.

    In reality, we call this a drop in the standard of living…. which for the vast majority of is is ‘how many hours do I have to work to acquire this’

    So getting the same for less hours (cost), or getting more for the same hours (cost) is an increase of living, its how ‘improved productivity’ is meant to benefit us.

    Getting the same for more hours (current cost of housing) or getting less (tiny homes) for the same hours…. is someone (boomers) else not only taking today’s productivity, but clawing back the past productivity gains…

    • Stewie GriffinMEMBER

      Tiny homes in Australia are still a step up for most Nepalese – we don’t want our imported servants getting too uppity with a full quarter acre block.

  2. Imagine if you’re a slumlord. Instead of building the cheapest granny flat for $100k and renting it out for $400 a week, the slumlord can ‘lease’ the land to a ‘tiny home’ buyer for $400 a week without even spending the initial 100k. What is there not to like about tiny homes?

  3. No, they are the solution for rent seekers and slumlords trying to profit from floods of people pushed into ever declining space and amenity. Tiny homes is the same marketing ploy as used to sell a “new concept” in hotel rooms where you are treated as a sardine but pay like a whale. Tiny homes are what ghettos use to bring up families. It is simply disgusting and anyone who promotes it should be taken out behind the wool shed for some tiny advice.

  4. Apparently the RV industry is holding up the US economy. When your broke and need a home who is going to complain about size. They call them recreational vehicles but nobody is having fun when its all you have got. This is coming to oz.

    • But in the USA, there are dozens of cities you can move to for a proper McMansion at around 3 times median household income. Really it is just a California problem, with a few other States being moderately bad. But only California is as bad as Straya.

      Some of the US median-multiple-3 cities are the first world’s fastest growing, too, so it ain’t about “too much demand pressure”. It’s about whether you are prepared to have a free enough market in the allocation of land to differing uses, to keep the land prices stable and hence allow housing suppliers to get on with making their money on volume.

    • I should also point out that in the median-multiple 3 US cities, you can still get tiny homes as well. But they are $40,000; instead of being a $350,000 “replacement” for the McMansions that should be $350,000 but are now $800,000. $40,000 tiny homes are the free market’s provision for the truly poor; but in the rentiers rigged racket market, they are just a means of extracting even more economic rent from more people per unit of land.

      • GunnamattaMEMBER

        I agree with Phil

        Have a look at Milwaukee. I know it isnt everyones cup of tea, but it isnt unpleasant. Back to early 80s a mate I went to school with did a brewing traineeship with Carlton United Breweries (essentially making VB and Fosters). At some point down the track when CUB became Elders or Fosters Brewing or whatever they became, he got he chance to do a year in Milwaukee with Miller (US beer). Of course he hooked up with some young bird there and has remained there ever since – so quite regularly we compare houses prices in Geelong and Milwaukee.

        I can tell you where the far better value is (and it isnt Geetroit).

  5. Don’t pay much attention. Read between the lines. STASI has to clear apartments and make buyers of the same to feel like winners because there are lucky not to live in “tiny homes”.

  6. Curbing generous tax breaks for property investors?
    Slashing immigration levels?
    Heresy! Those are the 2 fundamentals propping up the Aus “Service only – we don’t make anything that sells” economy. Next you’ll be asking that our road workers do somehing other than holding up a lollypop (and tha’t the only one you see actually DOING anything)…

  7. Jumping jack flash

    Tiny homes is pretty much the only solution. Houses that have debt attached to them, ie, almost all houses, cannot ever fall in price. In fact these houses must constantly rise in price to generate debt capacity to create debt faster than interest rates so the next pile of debt required to buy the same house can cover the interest paid on the last pile of debt that was needed. Otherwise the economy loses money.

    Eventually all cheap houses will become expensive and it will be impossible to have “entry level” houses. The problem is that incomes have disconnected from house prices because debt is used to supplement inadequate incomes. Income and savings alone will never be able to afford the prices.

    Something has to give otherwise the debt required to buy a house, ie, enter the debt ponzi, would become unattainable and it would all just stop. So the answer to the conundrum is tiny homes. Eventually they too will become too expensive, even with debt, but that’s a long time away.

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