The manufactured housing industry has closed another 12 months of steady growth, fueled by strong demand. Investor interest in the asset type stayed high in 2021, despite declining cap rates.
But the biggest issue the sector experienced last year continued to be the scarcity of new supply, both in terms of new communities and new homes within existing properties. Supply chain discrepancies had a significant impact on the production of new homes, preventing community owners from replacing old homes or filling vacant lots. Additionally, the industry’s persistent image problem continued to impact the construction of new communities.
Capital Square 1031 Founder & CEO Louis Rogers, along with Nodel Parks Vice President & General Counsel Jordan Nodel, talked to Multi-Housing News about the manufactured housing sector’s performance and revealed their expectations for the year ahead.
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While the sector has mostly been sheltered from pandemic-induced difficulties, what were the biggest challenges the industry faced last year?
Rogers: This will surprise you. The greatest pandemic-induced difficulties in the MHC industry is not rent collection or occupancy. Rent collections and occupancies are at all-time highs, near 100 percent in Capital Square’s three- and four-star age-restricted communities in Florida.
The greatest pandemic-induced challenge has been permit issuance and availability of new homes to fill vacant lots. There is a waiting list of buyers for new homes and tenants who want those homes in Capital Square’s MHC communities, but local governments have been exceptionally slow in issuing permits for new homes and turning on utilities. In addition, some home builders have been unable to deliver sufficient new homes to fill the demand, leaving lots vacant in spite of strong leasing demand from prospective residents.
Nodel: Despite our greatest fears about COVID-19’s impact, rent collections at our communities stayed the same or, in certain cases, actually improved during time periods correlating with the stimulus checks. So, on one hand, the government intervention stabilized our communities and helped us weather the storm, but on the other hand, the start/stop nature of the CDC eviction moratoriums, various state and local mandates and FHA rules left us as community operators, as well as our residents, without clear and consistent guidelines about the rent collection process. Direct rent relief programs to residents have been helpful, though the programs are run at the state and local levels so the efficacy of them varies.
But on the other hand, the start/stop nature of the CDC eviction moratoriums, various state and local mandates and FHA rules left us as community operators, as well as our residents, without clear and consistent guidelines about the rent collection process. Direct rent relief programs to residents have been helpful, though the programs are run at the state and local levels so the efficacy of them varies.
Yet affordable housing, such as the kind that we provide, has never been in higher demand. This demand, coupled with the supply chain issues that affected mobile home manufacturers, made it much harder for us to get new homes delivered to our communities, at least at the number of homes that we’d have wished to purchase for resale. Whatever homes we were able to import became quickly occupied.
Which U.S. manufactured housing markets performed the best and why?
Rogers: Four- and five-star Florida parks in age-restricted communities performed the best. Rust bowl “trailer parks” populated by lower-income residents performed the worst.
The residents in high-end, age-restricted parks in Florida are retired and are not as dependent on employment to pay their lot rent, and they have retirement income and savings. It was a year of “business as usual” for them.
Compare relatively well-to-do retired residents with working-class residents employed at the lower end of the service sector, for example, working in restaurants and factories that closed during the pandemic. A larger number of working-class residents struggled to pay their lot rent, while wealthier retirees had no financial issues induced by the pandemic.
Nodel: All the markets that we’re in, which span a wide footprint stretching from Alaska to Alabama, have performed very well. This underscores the fact that wherever there are jobs, there’s a need for affordable housing. And there’s definitely not enough of it. When the average stick-built home today costs over $325,000 while the average manufactured home is under $60,000, it’s evident why they are part of the solution to our affordable housing crisis.
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What role does manufactured housing play in alleviating the affordable housing crisis?
Rogers: MHC communities still provide the most affordable price point for housing, and they provide exceptionally affordable housing. In addition, MHC communities combine the best features of the rental model and ownership. Residents own their own home and have their own private yard, but only pay a modest lot rent and have use of substantial common areas and amenities.
Nodel: Manufactured housing has always been a great solution for the affordable housing crisis. The problem is that as much as local governments complain about the need for more affordable housing, generally speaking they tend to hinder the development of manufactured home communities. Although in certain places—for example at our properties in Albuquerque, N.M., Winston-Salem, N.C., and Florence, S.C.—we’ve had great success expanding our existing communities and being able to offer new homes for sale or rent.
What obstacles do you believe the industry will still have to overcome in 2022 to become a more attractive/competitive asset class?
Rogers: Quicker permitting and more homes that can be purchased and made ready for sale are needed for MHC industry expansion in 2022. But substantial obstacles for new park expansion from the NIMBYs remain.
This creates a paradox. The lack of new park supply makes the existing inventory of MHC communities more valuable, but insufficient communities for sale makes it very difficult for owners and operators with capital to acquire new parks and expand.
Nodel: Manufactured housing remains a very attractive and competitive asset class, both for investors looking to acquire more properties and tenants looking for a new place to live. I do worry that the exceedingly high prices that investors are paying for mobile home parks these days, and the management style that certain groups may bring, will increase legislative backlash against our industry and encourage rent control or unduly restrictive regulations on landlords.
What trends do you think will define the manufactured housing sector in 2022?
- Continued demand from new Florida residents migrating from other states—in particular the 55-and-older demographic—who discover MHCs as the most affordable option for housing while providing a great residential experience.
- High occupancy, with nearly 100 percent of lots ready for homes in top-tier parks.
- Rising household expenses, typically exceeding the rate of inflation.
Nodel: Despite the workforce and inflationary challenges that all businesses will continue to face in 2022, we expect Nodel Parks to do well, as I think the whole industry will.
But we’ll be somewhat constrained by the increasing longer lead times to get new homes from manufacturers, the lack of direct mortgage lending to potential customers who want to buy homes in our communities, and the availability and reliability of our workforce.
What are your key predictions for the industry in 2022?
- Continued stability of the MHC asset class.
- New entrants seeking to buy MHC assets—without much success—because the asset class is exceptionally stable and resilient.
- Ample availability of attractive debt from agencies—Fannie and Freddie—and other sources aiding investment activity from an expanding investor pool.
Nodel: The prices newer groups are paying to buy communities and the lower yields that such acquisitions will generate mean that companies like ours may not be buying as many communities as we did in the past. And the big worry is that the oftentimes excessive rent increases that new operators are pushing after acquisition will bring a major backlash against our industry as a whole.