These states will pay you to build a tiny home in your backyard

As the cost of living continues to rise and housing shortages worsen across the United States, a growing number of states and cities are turning to tiny homes in backyards—also known as Accessory Dwelling Units (ADUs)—as a creative solution to boost affordable housing. What’s more, some states will even pay you to build a tiny home on your property.

From grants and low-interest loans to cash-back programs and tax incentives, homeowners across the country are tapping into state-sponsored initiatives that make building a backyard tiny home easier and more affordable than ever before.

Why Are States Paying You to Build a Tiny Home?

With housing affordability at crisis levels in many urban areas, governments are encouraging homeowners to create additional dwelling units on their existing lots. These small homes, often ranging from 300 to 800 square feet, can serve as:

• Rental units to generate passive income

• Housing for aging parents or adult children

• Long-term affordable housing for low-income tenants

By subsidizing the construction of backyard units, states aim to:

• Increase housing supply quickly

• Combat homelessness

• Support multi-generational living

• Stimulate local economies through construction

States and Cities Offering Incentives to Build Backyard Tiny Homes

1. California

California is leading the nation in ADU-friendly policy. Several cities and counties offer grants up to $40,000 to eligible homeowners for pre-development costs like permits, design, and site preparation.

Programs Include:

• California Housing Finance Agency (CalHFA) ADU Grant Program

• Local incentives in cities like Los Angeles, Oakland, and San Diego

• Property tax breaks under Prop 19 for ADU construction

2. Oregon

Oregon promotes ADUs as part of its affordable housing strategy. Portland offers SDC (System Development Charge) waivers—saving homeowners up to $15,000 when building a backyard unit.

Highlights:

• Portland’s “A Place for You” pilot program connects homeowners with low-income renters

• Flexible zoning laws under House Bill 2001 allowing more housing types

3. Vermont

Vermont’s "VHIP" (Vermont Housing Improvement Program) offers grants up to $50,000 to help homeowners create new rental units, including tiny homes or backyard cottages, especially in rural or underdeveloped areas.

4. Washington State

Seattle and other Washington cities offer pre-approved ADU design plans, reduced permitting costs, and low-interest loans to encourage homeowners to build secondary housing units.

• Grants available through local housing authorities

• Seattle's Backyard Cottages program simplifies the process with design templates and fast-track permits

5. New Hampshire

With a push for more diverse housing stock, New Hampshire cities offer incentives through Community Development Block Grants (CDBG) for ADU construction, especially if the unit is rented below market rate.

Learn more about These U.S. States Will Pay You to Build a Tiny Home in Your Backyard

Benefits of Building a Backyard Tiny Home

How to Qualify for Tiny Home Incentives

While specific requirements vary by state and city, most programs follow similar guidelines:

1. Owner-occupied properties are typically required.

2. Units must meet local building codes and zoning laws.

3. Homeowners may need to rent the unit at affordable rates for a certain period.

4. Applicants often must complete a ADU permit process and provide contractor estimates.

Some programs prioritize applicants who plan to rent to low-income tenants, veterans, or family members with special needs.