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Key Takeaways:

  • Tiny homes have not yet gained a large share of the residential market, having been responsible for only 2% of all home sales in NYC and San Francisco for the last eight years.
  • New apartment buildings have smaller units on average, with almost three quarters of them being under 1,000 square feet in 2018.
  • Tiny homes seem to be popular with the short-term renters, like students and young professionals.
  • Less dense cities like Columbus and Indianapolis have had more tiny homes sales than Chicago and Philadelphia. However, the opposite is true for tiny rental home construction.

 

The tiny house movement has gotten a lot of attention in recent years as a way to save money, reduce stress and lower your environmental impact. However, the concept is hardly new. NYC has had tiny homes, called Single Room Occupancy apartments, since the Great Depression. With space in denser cities coming at premiums, they’re an attractive option for those whose main priority is location. Yet, fitting your whole life into 500 square feet is not for everyone, especially if it’s not just you.

Smaller home sizes in general seem to be gaining traction, even in more spread-out cities like Phoenix, where 66% of apartments completed were under 1,000 square feet. So, we looked at home sales volume, median sale prices and apartment completions from the top-10 cities by population in the country to determine if this is an actual trend for buyers and renters or more of a niche concept.

Not a Lot of Buyers

In the last eight years, homes under 500 square feet accounted for about 2% of all home sales in NYC and San Francisco. That’s a pretty low percentage given the amount of media coverage for tiny homes and micro-apartments. Even home under 1,000 square feet comprised less than a quarter of all sales in both cities. The lowest was San Jose with just 36 sales under 500 square feet since 2010.

Sales volume by size in the last 8 years

It may seem that denser cities would naturally attract more tiny homes, but that’s not necessarily the case. NYC and San Francisco may have had the highest amount of tiny home sales of the cities we looked at, but similar cities, like Philadelphia and Chicago, had hardly any. Meanwhile, Columbus and Indianapolis, which are far less dense, had more than Philadelphia and Chicago. Still, these differences are barely a blip on the radar of the total home sales in these cities. Based on this data, tiny homes don’t appear to be an attractive option for the average buyer at this point.

Tiny Rentals May be More Popular

Looking at what apartment sizes are being built can give us some insight. Last year, 72% of completed apartments were below 1,000 square feet in the cities we studied, according to RentCafé. In San Francisco, almost one-quarter of the completed apartments were below 500 square feet. Even sprawling cities like San Jose and Phoenix built more apartments under 1,000 square feet than over. So, we’re seeing a shift towards smaller homes based on the increased number of homes being built under 1,000 square feet.

Completed apartments in the last 8 years

Even with the shift towards smaller homes, tiny homes don’t seem to be making much of a statement in more spread-out cities. . Only 10% of the apartments for rent in Chicago were under 500 square feet. Of the apartments built in San Jose and Phoenix in 2018, less than 2% were under 500 square feet. Chicago and Philadelphia had fewer tiny homes sales than Columbus and Indianapolis, but both Chicago and Philadelphia built about twice as many tiny home rentals in 2018.

Getting Less for More

Looking at prices, there was no surprise to see that rental prices have been increasing slightly faster than sale prices across the country, but there are large differences from place to place. Median home prices in Phoenix registered a 12% annual increase over the last eight years while annual rental increases were under 7% over the same period.

Home Prices and Rental Rates

NYC is on the opposite end of the spectrum. Over the last three years, NYC has posted a 7% annual rental rate increase, almost twice the growth rate of median home prices. So, while prices nationally are increasing at relatively the same rate, there are clear regional differences at both extremes. Given this trend, it should come as no surprise that smaller spaces are becoming more popular with rental homes.

A rising tide lifts all boats, and the same price that could be paid for 1,500 square feet eight years ago may now only buy 900 square feet.

Great for the Rental Market

All this information indicates that tiny homes aren’t typically desirable for long-term residents. They’re best suited for young professionals and students who prefer renting over buying, which allows them to be in central locations, close to work and entertainment, without incurring exorbitant rental rates or the costs of car ownership.

A prevailing theory is that tiny homes can aid in the housing crisis for low-income households. However, most low-income households are families with children, and the smaller spaces aren’t very practical. Additionally, due to the increased number of fixtures, they typically have the most expensive price per square foot among all apartment sizes.

While the concept is trendy, it’s hard to know if it will really take off in the near future. For now, most developers are taking a “wait-and-see” approach until the direction is clearer. What’s likely to happen is a slow peppering of micro units into existing and future developments. Either way, it’s unlikely that tiny homes will become a major trend anytime soon.

Methodology:

  • To determine the market share of tiny homes, we looked at all residential transactions that closed between January 1st, 2010 and November 21, 2018, for condos, coops, single- and two-family homes. All package deals were excluded. Only properties within city limits were considered.
  • We looked at the top 10 cities by population, excluding Texas and Jacksonville.
  • Rental data, both prices and completed apartments, was sourced from RentCafé and Yardi Matrix.
  • We looked at all rental properties that have 50+ units. The rental data for NYC refers only to Manhattan.
Patrick McGregor

Patrick McGregor

Patrick McGregor is a senior writer at CommercialCafe, covering the real estate industry and overall economic trends in the United States. He also holds an MBA from Thunderbird School of Global Management. Before joining CommercialCafe, Patrick was a commercial real estate analyst at Yardi Matrix for five years.