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And Why I think Millennials will Rival the Greatest Generation Ever
City planners will tell you that they oppose tiny house legalization because they already have rules on the books making it illegal to live in your RV year-round.
It’s a circular argument–tiny houses are regarded (and plated) as home-built recreational vehicles, so they are a subclass of RVs, and zoning ordinances already ban permanent habitation of same. QED.
The real reasons tiny houses are banned are as follows:
-anything on wheels cannot be assessed for property taxes; hence, cities, towns and villages are afraid that their realty tax base will shrivel up and die
-NIMBY (not in my backyard) folks fear that tiny houses (literally) in your backyard will attract immigrants, poor people, homeless, criminals; hence, property values will drop
-engineers worry about overloading sewers, water mains and other utilities
-RVs are considered ugly/visual blight
It is my view that these concerns are largely unwarranted. I’m sure that politicians can and will find a way to tax tiny houses so they pay their fair share of municipal services. A licensing fee perhaps?
Demand from a tiny house in terms of municipal services is certainly going to be less than coach houses, which many cities already permit or soon will in your backyard. Of course, coach houses have permanent foundations and, thus, can be added to the tax base, which makes them more acceptable than tiny houses.
In terms of design, millennials are redesigning pretty much everything to be better not only in terms of performance but look and feel as well. There’s no reason tiny houses (or for that matter RVs) have to be ugly.
[As an aside, I personally think the millennial generation may rival the greatest generation ever, the folks who lived from 1913 to 2000. They went through a Great Depression, faced two world wars and a cold war, took the planet from horse and buggy and iron horse (steam locomotive) to computers, the internet, smart phones, jet aircraft, rockets and the moon. Millennials, are like their grandparents or great grandparents–they start early (in their teens or early 20s) and question everything.In terms of code, software applications, artificial intelligence, space travel, mobile computing and communications, virtual reality, energy production, business models, branding, design, art, music, power production and delivery, transportation, hyper loop, autonomous vehicles, intelligent avatars, environmental and medical science, I am expecting truly wondrous things from this generation.]
Furthermore, NIMBYs have nothing to fear except fear itself. In almost every case where a city densifies and intensifies, property values go up not down, all else being equal. The latter means as long as public order is maintained, an essential component for any civilization and consequent development of economic value.
I can prove it to you.
In the table below, the cap rate on this theoretical tiny house at 10.9% is quite a bit higher than your “normal” residential rental bungalow (6.4% pa).
If you apply the “normal” cap rate to the total NOI (annual net operating income for the bungalow and tiny house), you get an increase in property value of $170,833. But the tiny house cost $100,000 in this example to build and install (or buy and install), which means this proud owner made a capital “profit” of $70,833 on her/his investment.
In other words, her/his property’s fair market value went up an extra $70,833 over and above their costs, as long as public order is maintained…
They will also, in my view, make our cities and towns more interesting and animated.
Some people are banding together to try to change these anti-tiny house views and
regulations; watch this video:
postscript: there is one other caveat I can think of that seriously impacts the above analysis. Realtors, lenders, mortgage brokers and appraisers will have difficulty coming to grips with the increase in value, not only from tiny houses but coach houses as well. There are few comps (comparables), and most of them are not familiar with property valuation any other way.
The three main ways to value property are: comps, replacement value (less depreciation) and on an income basis. The industry mainly uses the first methodology so investors and homeowners will likely be shortchanged in terms of getting fair valuations for mortgage or sale purposes.
However, if you use the Warren Buffett method applied to real estate that I coach–buy smart/animate/add value/manage well/drive up value/hold & refinance/repeat, it won’t matter (much) in the long run.
Mind you, as someone famous once said, “In the long run, we will all be dead.”
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