Transcript for Tiny Houses: Making the Most of Pint-Sized Spaces
For aujs, a key part of the American dream, at least for some people, have been owning a bigger house. Tonight, though, we're going to take you inside one of the most fascinating new trends in real estate. People opting for radically smaller houses. We're talking like 200 square feet, even smaller. And the tiny house movement isn't just about cutting costs. It's about rethinking what we really need to be happy. Here's my "Nightline" co-anchor juju Chang. Reporter: At first glance, this building, parked in a backyard, might look like a tool shed. This is the 84-square foot tiny house. Let me give you a quick tour. You might want to stretch first. It's rigorous. Reporter: But this is what Dee Williams calls home. A tiny home. The size of a single room. From wall to wall, it's six foot, ten inches. Reporter: Here in Washington, Dee's been living in space the size of a luxurious walk-in closet for ten years. And she's not alone. Thousands of tiny homes have been built across America. And the trend is growing rapidly. As recession-wary homeowners attempt to redefine the American dream. The sleeping loft, it's a four-foot ceiling up here. I measured myself in order to figure out, you know, how tall to make it. It was so that I could kneel walk across the bed to make the bed. Reporter: Sure, the house has its limits. Dee can't take a long, hot shower. One thing you may notice is messing is the faucet. I don't have running water. Which is okay. Reporter: Nor can she store much food in this small, blue cooler that is her refrigerator. I don't think it has anything in it right now. Maybe beer. Maybe hatch Alf and half. What more do you need? Reporter: All jokes aside, Dee says tiny house owners are usually doing some serious soul searching. Dreaming big in the past was being able to get a good house and then a better house. I think what people are discovering is that those things don't necessarily bring you closer faster to who you want to be. Reporter: These little buildings may look cute, but they're a radical real estate trend in a country where the average home is a sprawling 2,600 square feet. In fact, most tiny houses are too small to be legal. The bathroom is not really a bathroom. The kitchen's not big enough. Reporter: Dee's home, build on a trailer, is classified more like an rv. She's never had any legal trouble, though. And despite their outlaw status, tiny houses have exploded in popularity. There's a documentary on netflix. "Tiny: A story about living small." Tiny house dating.com, for those looking to share their very intimate space. And there's a reality series on the FYI network, where a small home is built for a different family each week. What do you think? It is beautiful. Doesn't it look really nice? Reporter: John hosts the show. He points out that tiny houses, which cost on average $23,000, could be the answer for today's debt-burdened, cash strapped millennial. People coming out of college with huge student loans and want to live mortgage free. Reporter: He admits the trend is not for everyone. Tiny house living is extreme. I mean, asking people to go from 2,000 square feet to 200 square feet is aggressive. Oh, cool. That is awesome. Reporter: Kim and Ryan castle, a Minnesota couple featured on the show, are diving right now. We value our experience more than our possessions. It's on a trailer. It has to be under 8 1/2 feet wide. Prison cells are six feet wide. It's something that's going to have very unique challenges for them. Reporter: John and his building partner Zach have come up with all sorts of tricks. Dog food. That is so cute. Reporter: To make the most efficient use of space. We manage to fit the bed underneath your office. Reporter: If you're not sure you're ready to take on the space challenges yourself, you can try a tiny house on for size here at caravan, America's first tiny house hotel. Welcome to the caboose. Come on in. Kids love the caboose. It's the favorite among children. Kind of made it really just kind of fun and playful in here. Reporter: Caravan co-owner deb proves that tiny houses can be just as luxurious also any full size house. Reporter: All the houses have microwaves, coffee makers, hot plates. And that lifestyle encourages community. You need to go to the local laundromat. You don't have a full kitchen. You might need to go to a restaurant. It connects people around them. I think I want to stay in each one and build my house. Reporter: Many of caravan's visitors are do it yourselves, trying to get insight before they embark on building their own tiny houses. Because diving in unprepared can be dangerous. There's definitely a right way and a wrong way. Reporter: Daren Williams builds shells of tiny homes like this one. It kind of transitions into a full kitchen area. Full catwalk in for storage. She's got a big Japanese soaking tub. Reporter: His focus is building green. And for echo conscious homeowners, tiny homes are hard to beat. Maintenance on this home versus the home that we're right next to, there's a huge difference. Heating, cooling, all those things are done in much smaller space. Your footprint is reduced because you can't bring home as much stuff. Reporter: With her 84-square foot hot, Dee Williams might have the smallest footprint of them all. But her tiny home has helped her tap into one of life's biggest secrets. A lot of people are discovers what they have is really what they need. And they're finding that they're a lot happier once they let go of the myth that, you got to have something more in order to be happy. Reporter: For "Nightline," I'm juju Chang in New York.
This transcript has been automatically generated and may not be 100% accurate.