Stuart Dakin and Leah Stephens in their tiny house in the Yarra Valley. Credit:Chris Hopkins For the couple the shift to tiny living was partly inspired by the desire for a tree change and partly by Dakin's desire to have a crack at building something from scratch. He did a building workshop over two weekends and then built the house on weekends and during school holidays over a two-year period. It was also the opportunity to swim against the tide of Melbourne's rising house prices. "I was interested in doing something a little more environmentally and socially conscious," says Dakin. "Also in experimenting with what is possible in terms of how small a space you can live in and how few materials you can actually use to build a comfortable space." At $35,000-$40,000, the entire house cost less than most city-dwellers would need to stump up for a home deposit. Plus, he funded it from savings, not debt.

Living in a confined space doesn't faze the couple - except when their cat bothers them at night. Credit:Chris Hopkins Among the biggest outlays were the solar panels that allow them to live off the grid ($6000-$7000) and the custom-built trailer that transported the almost four-tonne house to its location ($8000). Using recycled materials helped to keep costs down, with about half the materials second-hand. The living costs of their petite maison are virtually nothing – gas bottles are about $60 per month and they sometimes need to fill their water tanks. To park on the 30-acre block they provide a helping hand to the land's owners. Will living tiny be a long-term move for them? On that they are not 100 per cent clear. For now they are making the most of the time to save – possibly to buy their own block of land. "It's kind of bought us the time to be able to do that," says Dakin.

They are not the only ones exploring the possibilities behind tiny housing. It's rapidly becoming a trend, spurred on by programs such as Tiny House Nation on the Lifestyle channel. It's a fully fledged phenomenon in the US where people have built tiny house villages for the homeless and set up businesses to build tiny houses for others. In Australia, it's hard to pin down the figures since many tiny house owners prefer to fly under the radar to avoid council hassles. Yet interest is high - for example, the Tiny Houses Australia Facebook page founded by Darren Hughes has attracted 31,000 fans in its first three years to April 2016. In Sydney The Bower Reuse and Repair Centre has partnered with TAFE Sydney to run a Work for the Dole project that will see a team of people building a tiny house from scratch using recycled materials. The 13 dole recipients work with experienced tradespeople and TAFE teachers and by August they should have a completed tiny house. It will then up for sale at The Bower's annual auction in November.

Along the way the participants gain basic carpentry skills and by the end of the project they will receive a white card and Certificate I Access to Work and Training. Guido Verbist, general manager, The Bower Reuse and Repair Centre, says it's not the first time the organisation has worked with people tackling a tiny house project. Several years ago it worked with a local builder who wanted to build one. Then it held a weekend workshop where 15 people paid $1200 each to build a tiny house together over a weekend. On the cost of building one he says: "It doesn't have to cost a big fortune." He suggests someone who does the work themselves; has the tools; and uses second-hand materials could build a 4x2m house that sits on a second-hand car trailer for $6000. The cost climbs if you add a kitchenette; water tanks and solar panels. Although they seem a great solution to housing affordability issues, there are still grey areas around tiny houses particularly in urban areas. "Councils haven't really decided what laws apply," says Dakin.

For those who want a bit more room to swing a cat, there are other options. Studio apartments can potentially offer an entry point for first home-buyers willing to live small. Although they don't offer the same capital growth as larger properties, they can be a way to keep mortgage costs manageable. The strategy can be stifled by lender policies on properties under 40 square metres. Jessica Darnsborough, head of corporate affairs, Mortgage Choice, says the lender will apply the usual criteria when assessing the risk of the loan: the property's size and location and the borrower's capacity to repay. If the borrower only has a 10 per cent deposit they may draw the line on lending for anything under 40 square metres. Often that is the product of the mortgage insurer's policy, she says.

"You can try a different lender that potentially deals with a different mortgage insurer or you can continue to save and try and build up a bigger deposit," she suggests. Even with a 20 per cent deposit, getting a loan on a studio apartment is not necessarily a shoe-in if a lender is already overexposed to a particular apartment complex. Some shy away from studios in student accommodation, too.