The Hani people usually build their villages on the sunny mountainside. Exuberant green bosks, bamboos, palm trees, peaches and plum trees are located behind the villages with terraces stretching to the bottom of the valley. There are also spring wells near the villages. Houses are strewn randomly according to the shape of the mountain.

Hani houses are called mushroom houses due to their shape. According to legend, in ancient times, the Hani people lived in caves and the tall mountains and steep roads made it inconvenient for them to go outside. They then moved to a place called Reluo, which had big mushrooms scattered around the mountain. The mushrooms, which resisted the wind and the rain, provided shelter for ants and other insects. The Hani people therefore built mushroom houses imitating the mushroom shapes.

Traditional Hani houses have bamboo frames and walls made of sundried mud bricks and a thatched roof. The wall is about half a meter tall, with one-half underground and one-half above ground. The roof is covered with many thatches in the shape of bevels. The house consists of northern rooms, a front corridor (equal to a antehall) and side rooms. Usually, the bigger, northernmost room is the main hall. In the Banna area, parents' bedrooms are located to the east of the main hall and have a sacrificial ancestral tablet.

The mushroom house, with more than two floors, has a ground floor with sheds for horses, cows and storehouses for slaughtered livestock. The second floor is partitioned by wooden boards to form three separate rooms, with a square fireplace in the middle room. The top floor is sealed with clay for fireproofing and the space between the second (or the third) floor and top floor of the house is called fenghuolou. Fenghuolou is divided by wooden boards into several sections for storing corn, vegetables and fruit; it also serves as a place for sons or daughters of the right age to have dates with their lovers. On the top floor, there is a flat-roofed room and a thatched room with two or four bevels where guests are invited to sit by the fireplace to smoke, drink sticky rice tea or Menguo wine and sing for good luck.

The mushroom house is both pleasing to the eye and durable; it is cool in summer and warm in winter, which makes it very special to the culture of Chinese residential architecture. The biggest Hani village, Mali Village in Yuanhe County, is the representative village of mushroom houses. From a distance, the clumped villages, with their terraced fields, bamboo forests and "mushroom houses" take on a tranquil air.