New Trend: Fewer People Buying Vacation Homes, but Tiny House Rentals Are Booming

According to Mihkel Eliste, a professional appraiser and analysis expert at Estonia's largest real estate agency Uus Maa, Estonians have started renting small houses instead of buying vacation homes, and this market is booming.

According to Mihkel Eliste, vacation homes have increasingly become a rental business. "Both the residential real estate market and vacation properties are moving towards rentals – the younger generation doesn't want to commit to real estate for long periods, meaning they don't want to spend every summer in the same place maintaining their garden. People also want to try renting to see if a vacation home lifestyle outside densely populated areas suits them at all," said Eliste.

"Throughout independence, vacation home culture has slowly faded and was considered a luxury for the wealthy, but the boom in small vacation properties really started during the coronavirus period, and now a mini vacation home is no longer just an expense – it also brings money back. A new real estate class has emerged – small container or modular houses for rental purposes," commented Eliste, adding that competition has grown significantly by now and demand has begun spreading geographically across many new locations.

"While the most sought-after vacation homes are typically along the coast, small modern vacation properties are being built massively throughout Estonia, and they can also be in the forest or, figuratively speaking, in a field – people are looking for an experience and a different environment, wanting primarily to get away from Tallinn for a change. Currently, there are around 200 vacation properties available for rent according to AirBnb data, with the main ones being various small houses, often accommodating up to four guests. Rental vacation properties are mostly booked throughout the summer, and in winter, the occupancy rate of popular ones is also significant, which often allows asking several hundred euros per night for a twenty to fifty square meter modernly furnished container house," said Eliste.

"Quite a lot of seasonal so-called glamping accommodations have also been built, for which a hundred euros per night can be asked, which can provide quite good returns considering the investment amounts," said Eliste.

According to Uus Maa's analyst, more and more vacation properties and glamping sites are being built on larger plots where people also live or vacation themselves and earn extra income from them. "Building a small house away from Tallinn is a relatively low-barrier enterprise compared to average real estate development, and also involves less bureaucracy. Since it's often possible to get a loan from the bank for construction, this makes the field attractive for small business owners. While running small accommodations does require daily attention, it is possible in good cases to achieve 15%-25% annual returns, which is rather quite high compared to the long-term rental business of residential real estate," said Eliste.

"For example, in Läänemaa, where plots are often larger than average, the same plot of land can accommodate both your own home and a sauna house for rent, converted outbuildings, or element or modular houses. Foreign visitors actively visit vacation homes looking for a nature-close experience, thus offering increasing competition to hotels. In this regard, luxurious small vacation properties built into nature are quite unique in the world and have significant potential for nature and rural tourism also internationally. In Estonia, such potential is still largely underutilized," added Eliste.

"The second reason why container-type vacation homes are being built so much is that classic vacation homes in at least good condition are already very scarce in many areas of the market – Soviet-era vacation homes have largely deteriorated by now and have been widely converted and expanded for use as individual residential houses. In this way, old garden cooperatives in Viimsi, Muuga, Saku, and Aeska have essentially become regular residential areas. In Harju county, decent vacation homes currently cost an average of 100,000 to 150,000 euros, and in areas slightly further from the capital such as Kerna or Laitse often 50,000 to 80,000 euros. For vacation homes costing over 150,000 euros, it is still difficult to find a buyer even today," commented Eliste.