Is a tiny house for you?

Is a tiny house for you?

Joseph Darby

6 reasons why tiny houses aren’t a good idea, and 3 situations when they could be

Tiny houses have seen a huge rise in popularity overseas over the last few years, not just because of their minimal footprint but because of their cost efficiency in a situation where house prices continue to rise and available land continues to decrease, particularly in and around major global urban centres.

What is a tiny house?

A tiny house is a small cabin-like home built for simpler, eco-friendly, financially sustainable living. Tiny houses are generally accepted as being less than 37 metres squared, as opposed to the average NZ home size of about 156 square metres. Tiny houses (or tiny homes) are broadly split into two categories:

Tiny houses on wheels

By building your home on wheels you can overcome many of the regulatory hurdles that go along with a fixed dwelling on a concrete slab or piles. This sort of tiny house has the character and functionality of a permanent house, however, are built on a trailer, are not fixed to the land and are more like a large caravan or recreational vehicle (RV). This should make them exempt from the Building Act. Some specialist tiny house builders even construct road-registered and warranted vehicles.

Tiny houses without wheels

These have the character of a permanent house, are fixed to the land and are of similar scale to a large caravan or recreational vehicle.

Benefits of a tiny house

For those who are comfortable living in close confines, the following great benefits are on offer:

  • Flexibility. Relocatable tiny houses might enable the owner a semi-nomadic lifestyle.
  • Fewer materials. Great for the environment and the wallet!
  • Reduced energy use. Aside from being another win for the wallet and mother earth, it might also be realistic to create a self-sustaining home free of the need for mains power and water through the innovative use of solar panels or tiles, reclaimed water, batteries, Kiwi ingenuity, and other advances.
  • Smaller mortgage, more lifestyle: You will most likely have a much smaller mortgage than if you owned a fixed, standard residential property, meaning you are able to spend more money on your lifestyle choices.
  • Fewer things. Tiny home living is generally aligned with a less wasteful lifestyle, which can help occupants focus on the things that really matter in life.
  • More sustainable materials. These are a more realistic option for tiny homes as such materials (whether new or recycled) are generally available in limited quantities, which may rule out their use in a larger home. The newest sustainable materials on the market (such as solar tiles) may be cost prohibitive in large quantities but affordable for a tiny house.
  • Clever use of space: Imagine how much time you’d save on cleaning and maintenance.
  • Do you really need all that space? Some studies have shown that those of us living in regular sized homes barely use 40% of our own living spaces on average. Do you really need all those spare bedrooms?

Reasons why tiny houses aren’t a good idea

Despite the benefits above, there are several drawbacks of tiny houses, including:

1. Regulation

In New Zealand, the advent of tiny houses is held up by prohibitive and nationally inconsistent planning rules which often specify a minimum home or apartment size and require the same red tape regardless of the size of the dwelling or whether it’s an already in-use design. The reason so many tiny homes are transportable is a workaround to ensure compliance with various New Zealand regulations.

There are no nationwide rules about where a transportable tiny house can be parked. These rules are set at a council level and differ throughout the country. The best way to find out more about the rules for a specific area is to contact the relevant council. As far as we are aware, there are no specific regulations for transportable tiny houses, so it is probably best to ask about the rules for caravans as these can generally be seen as interchangeable.

2. Costs

One of the supposed benefits of tiny houses is affordability, however in NZ this is currently undone by practical restrictions mainly associated with the red tape of constructing a building.

Building a tiny house that meets the requirements of the building code (i.e. not a tiny house on wheels) is likely to cost around $100,000 in most parts of the country. At such cost, most people would prefer to build something more worthwhile with higher resale value.

3. Lending challenges

Bank approaches to tiny homes vary, though the following general points all probably apply:

  • As most NZ tiny houses are classed as vehicles, this means that a vehicle loan could apply rather than a home loan. This means that for certain wheeled types of tiny house there will probably be no access to a KiwiSaver first home withdrawal, though buying the land underneath will be eligible so long as it meets other criteria such as being the principal place of residence. Note: vehicle loans have higher interest rates and shorter terms than a usual mortgage.
  • Lending to build (even if the tiny house is classed as a building) is always more challenging than a more straightforward lending situation. As a general rule, banks don’t like lending on tiny houses, and they mostly treat such a project similar to kitset homes and transportable homes. In a normal ‘new build’ situation, if a person is building a new home, the bank (lender) will finance nearly all costs. However, with a tiny house, it is probable that banks will only offer lending – a mortgage – on the section, not the tiny house itself. This is usually 80% of the value of the section. This means a borrower will need to have the funds to pay for all of the tiny house costs, in addition to the 20% of the section’s value. This can make the personal contribution cost (before getting the mortgage) of a tiny home much more prohibitive than a regular “new build”.
  • A person may get funding for a tiny home through a third-tier lender (commonly called finance companies), but unless the property as a whole becomes ‘an acceptable security’ to the main bank and the borrower is able to refinance to a main bank on completion, the borrower could be stuck with very high interest rates.
  • Buying an existing tiny home that is classified as a building on a section should be eligible for a KiwiSaver withdrawal, as the KiwiSaver withdrawal can be put towards the purchase of the section.

Of course, it’d be wise to check this area in detail if you’re planning on buying an existing tiny home or building a new one!

4. Devalue

It might not be easy to sell a tiny house. Worse still, unlike a regular home, there are indications that tiny homes fall in value over time, and some evidence to suggest they may actually devalue the land they are placed on. Sound crazy?

Imagine a section in a good location that’s mostly unused, aside from a properly permitted and permanent tiny house. The value of the house and land is all held in the section, and anyone wanting to buy that section may want to put a decent-sized family home (or perhaps three or so townhouses) on it. The presence of the tiny house is an obstacle as additional council planning permission is needed before relocation or demolition can occur, in addition to the demolition or relocation itself before the land can be more efficiently used.

Banks know this, so this is one of the reasons they’re wary of lending for such projects, or even lending for someone to purchase or refinance a completed tiny house.

5. Theft

As many tiny houses are on wheels, there have been reports of them being towed and stolen when the owners are away. Thieves simply tow away the whole tiny house just as they might steal a parked caravan. Of course, this can be mitigated somewhat by:

  • Security systems,
  • A hidden GPS tracker so the towed-away tiny home can be easily located,
  • Vigilant neighbours,
  • Insurance – probably vehicle and contents insurance, (expect a higher premium than normal home insurance) and
  • Physical steps such as chains, blocking or removing the wheels, using a hitch lock, locating the tiny home in a tough to access spot, and so on.

6. Too small for some

Of course, a tiny house will be too small for some people, especially families. So, it will come down to your life stage and your lifestyle preference.

When a tiny house might be a good idea

1. Experience

Tiny homes can be a great idea if someone is a skilled tradesperson, or if someone is experienced in the execution of such a project. This might include if close family or friends have such experience and are willing to assist. This can keep a lot of costs to a minimum.

2. Land to spare

Building a tiny house on an existing property, for instance a granny flat (“minor dwelling”) in the backyard of an existing family home seems to be increasingly popular, including as a way for parents to help their adult kids into a first home. This can typically be assisted with a KiwiSaver withdrawal from the adult children, so long as the tiny home is on a different title and all other routine conditions are met.

This might also suit those with spare land on a farm or lifestyle block, or perhaps even at a bach. A tiny house or two could be added to the bach, perhaps to hold short term visitors as Airbnb accommodation or as extra space for family and friends during holidays.

3. Cash

Given the potential hurdles to obtaining lending, building a tiny home might suit those with plenty of cash on hand.

The bottom line: tiny houses

This is a promising area, but due to the complexities, it would pay for anyone thinking of a tiny house to get in touch and talk though their specific situation, location, lending options, and KiwiSaver approach. Regrettably, the regulations in NZ have a long way to go. However, things are changing and we now have a dedicated lobby group that’s been set up to help push through appropriate legislation to make construction of tiny homes easier!

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