Tiny houses are more popular than ever, but they're not the bargain everyone thinks they are

• The tiny house movement has grown even stronger during the pandemic, but that's made them more expensive.
• For some buyers, tiny houses are a more affordable alternative to the housing crisis.
• But they actually cost 62% more per square footage than regular houses, per Porch.com.

In a time when space is the ultimate luxury, tiny living is still going strong.

The tiny house movement burgeoned in the last decade, as mostly young 20- and 30-somethings opted for the minimalist life that came with living in a house smaller than 600 square feet on wheels. The pandemic, as with most things, accelerated the trend.

In 2018, 53% of Americans said they would consider living in a tiny house in a National Association of Homebuilders survey. By late 2020, 56% of Americans said the same in a poll conducted by financial company IPX 1031.

This interest created a boom in tiny house sales last year, Insider's Frank Olito reported. Experts told Olito that the pandemic created a new market for tiny houses among those looking for space to work remotely or as a way to socially distance.

The tiny house has always been popular as a seemingly budget-friendly alternative to a single-family home, especially among millennials, who've had a notoriously hard time saving for a down payment thanks to many an economic challenge. During the pandemic's housing boom, the generation's need for more affordable housing became even greater as housing prices reached record-highs. Tiny houses presented an answer.

But they aren't quite the bargain everyone thinks they are. Just as was the case with the national real-estate market, outsized demand and a serious supply shortage made tiny houses more expensive during the pandemic. It's even worse when you look at the fine print.

Tiny houses are still way more affordable upfront than the typical home, which sold for $403,000 at the end of the fourth quarter, per Fed data. But that typical home is also 1,900 square feet, according to Porch.com, compared to 225 square feet for the typical tiny house that was sold. That means tiny houses, which typically sell for $52,000, are 62% more expensive per square footage, even though they are eight times smaller.

That trade-off says a lot about America's housing crisis right now. Americans are so desperate for an affordable house they're willing to pay a 60% premium.

Here's how things got so bad.

Tiny houses technically cost more for less space

Tiny houses aren't always cheap. You might be able to find a do-it-yourself tiny house kit on Amazon for $19,000, but some more complex models can start at $180,000.

They're also pricier than they used to be. Lindsay Wood, who runs a tiny-house consulting business, told Olito she's seen prices increase drastically in the past year. She said that one to two years ago, a common 8-by-24-foot tiny house went for about $50,000. In 2021, it's more like $65,000 to $75,000.

The pandemic hasn't helped. Exploding demand clashed with limited lumber production, sending lumber prices skyrocketing. It's affected houses of all shapes and sizes.

Nick Mosley, owner of tiny house building company California Tiny House, told Olito earlier this year he was buying beams that once went for $2.50 each for $7.50 each. It's not just lumber: His supplier for the trailers, the foundation for tiny houses, increased its costs by 5% in 2021 to compensate for an increase in steel prices from their supplier.

"Materials costs nationwide are increasing, and that's driving up costs on a lot of tiny-house builders," Mosley said, adding: "The only way not to lose all the money we are paying out to meet material increases is to increase our prices too."

A tiny house is still a house, after all, subject to the same cost pressures and problems with demand and inventory. What it means is that the housing crisis has become so bad that it's pushed some people to pay more for less space, even if the overall cost is more wallet-friendly than paying less for more space. In turn, the demand for the tiny house market is creating the some of the same problems that the national housing market is seeing.

When you add it all up, the tiny house just isn't much of a bargain.

Millennials can't afford real houses

Even before the pandemic, the seeming affordability of a tiny house was a big part of the appeal for many millennials.

"People love tiny houses because the McMansion died," Melissa Juszczak, who helps run Think Big! A Tiny House Resort in New York's Catskills region, previously told Insider. "Millennials can't afford mansions."

Tiny houses, she added, are generally more affordable for millennials. Her mother, Margie Juszczak, who also runs the tiny house resort, seconded her sentiment. She said that while her generation was able to buy houses in the suburbs, millennials don't quite have the same opportunity, often because they're shouldering massive student loans.

Staggering student-loan debt, coupled with a higher cost of living and the lingering fallout of the Great Recession, have proved to be big roadblocks to millennials' ability to afford a home. At first, 2020 seemed like the year that could all change.

Millennials reached peak age for homeownership and aged into financial stability. Coupled with record-low interest rates, they were ready to buy a home. But such hot millennial demand exacerbated an already shrinking inventory of homes, thanks to years of underbuilding since the Great Recession, the pandemic itself, and a historic lumber shortage.

They soon found themselves facing their second housing crisis in a dozen years, staring down a cutthroat and overpriced housing market. It's pushed them into more affordable solutions to fastrack their path to homeownership, like buying a fixer-upper or a tiny house. More than three-quarters (86%) of first-time homebuyers - many of whom are millennials - said in the IPX 1031 poll that they would buy a tiny house as their starter home.

Now, finding a shortcut to homeownership isn't the only explanation for tiny-house popularity. Many tiny house dwellers genuinely prefer a more minimalist lifestyle or the ability to live a nomadic lifestyle while working remotely, so the trade-off isn't a sacrifice to them. And some tiny house owners also own an actual home, using their tiny house for office-like purposes.

The tiny house boom is like the real-estate market in miniature. It's leaving aspiring homeowners with no option but to get creative, and it's coming at a big cost.