As the affordable housing crisis shows little to no signs of improvement, manufactured housing communities have thrived as one of the best options for both residents and investors. To encourage the development of more low-cost housing options, President Joe Biden recently released a 13-page Housing Supply Action Plan. The document outlines legislative and administrative actions to address the supply side issue, with manufactured housing seen as a quick way to counter the sky-high demand for affordable housing across the country.
Multi-Housing News asked Marcus & Millichap Senior Vice President & National Director of Research and Advisory Services John Chang, as well as HARRI5 Founder & Principal Derek Harris, to discuss how the plan will impact the manufactured housing sector.
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How much has the pandemic changed the industry?
Harris: Manufactured housing communities maintained strong rent collections during the pandemic. The pandemic amplified the strong and stable income from these assets.
Institutional investors already investing in MHCs and new institutional MHCs investors recognized these are stable assets and allocated additional capital to the space. With the limited inventory, additional capital and competition, the value of these communities remained strong.
Chang: The manufactured housing sector has been popular for many years, but it has garnered increased attention recently as the housing shortage and rising housing costs have placed additional pressure on households.
Sales activity was strong last year, up 31 percent from 2020, but the broader commercial real estate sales activity was up even more, by 51 percent. That said, manufactured property sales had sustained growth throughout the pandemic, rising 33 percent in 2019 and 13 percent in 2020.
This asset type has been favored because of its lower management requirements, generally low vacancy rates and frequently higher yields than apartment properties. One of the greater challenges is the limited availability of manufactured housing properties for sale. There are far fewer of these types of assets than apartment buildings or other major commercial real estate property types.
With the severe lack of new supply, to what extent do you believe President Biden’s Housing Supply Action Plan will help increase new development across the country?
Harris: The progress will be slow but it is promising to see federal investments and administrative actions moving in a positive direction for lower-income housing. The development cycle takes several years to complete. Typically, entitlement timeframes are 12 months to 24 months. Development timeframes are 12 months to 18 months. Therefore, the supply will not be increasing for 2 to 5 years.
Chang: President Biden’s proposed plan would be a positive in helping to address the housing shortage and increasing the accessibility of these types of homes. Most notably, creating additional financing options for manufactured homes through Fannie Mae and Freddie Mac will improve homebuyers’ ability to access these homes.
How do you expect the zoning and land use changes within the plan to influence the NIMBY mentality that has kept new communities from being built in the past?
Harris: This is the most challenging aspect of the plan. Zoning and land use changes require public hearings and political approvals. These politicians are loyal to their constituencies. If their constituents oppose new MHCs within their communities, it will be challenging to change zoning and land use in many cities and counties across the country.
As an example, there has not been any significant development of MHC communities in the Phoenix MSA for 30 years because the local government is not willing to support the land use change. In fact, in Apache Junction, Ariz., the City initiated rezoning of my clients’ 40-acre parcel that was zoned for MHCs and changed the zoning to Regional Commercial.
Chang: This will likely take time. Manufactured housing often carries a stigma based on long-outdated perceptions of the product and the people who live in these neighborhoods. As people see how appealing and cost-effective the newer models are, communities could begin to redefine their perception of these homes.
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The plan is set to expand government-backed financing options for manufactured housing investors. How do you think this capital influx will impact development?
Harris: The availability of capital is always positive for the MHC industry. If the demand for housing continues and developers believe that they can get zoning and land use changes, it will help to develop new MHC communities.
Chang: Although expanded financing options will be a plus, financing manufactured housing community acquisitions and development has not really been the primary headwind. Local zoning restrictions, land costs and land availability have been a much more significant challenge. Consumer financing of these homes to be placed on rented lots will be a solid benefit for the sector.
Is there anything else that you believe should have been included in the plan?
Harris: The plan should specifically state Freddie Mac, Fannie Mae and FHA will loan on manufactured housing within land-lease MHC communities.
Chang: The plan would benefit from more standardization of construction regulations. Currently, different manufactured housing companies and localities have different construction rules. Standardization would streamline the industry.
The plan would also benefit from increased incentivization of land use and zoning rules to make it easier for developers to build these communities. In many cases, it is simply too expensive or too restrictive to add these communities where they are needed most.
As rents in traditional multifamily housing continue to rise, do you believe the affordability issue will bleed into the manufactured housing sector?
Harris: Manufactured housing will continue to supply affordable housing to lower-income seniors and families. The institutional investors are sensitive to the seniors and families living within their communities and don’t typically raise rents aggressively.
These institutions are great stewards of manufactured housing communities. When they acquire the community, they have a long-term plan to improve the communities to last for the next 50 years. They invest significant investments into capital improvements. They immediately begin paving roads, pebble tec pools and spas, remodeling clubhouses and amenities. These improvements add value to the communities and increases the value of the homes for the tenants. In addition, the institutional investors guarantee the preservation of these communities for affordable housing long term.
Chang: There is a clear relationship between the supply and demand of all housing. Home prices have risen at a record pace over the last two years, and that shifts housing demand to other housing options like apartments and manufactured housing. Currently, apartment vacancy rates are at a record low. Creating new housing options will be critical to keeping housing affordable.
How do you expect the manufactured housing industry to evolve in the remainder of 2022 and beyond?
Harris: The manufactured housing industry continues to have strong demand from institutional investors and it will in 2022 and beyond.
Chang: Manufactured housing plays an important role in the housing mix. It offers a blend of affordability and livability generally unavailable from other options. Currently, supply is falling dramatically short of demand and the key ingredient will be local development and zoning restrictions. If a solution can be found that resolves the public policy restrictions, market forces will likely deliver the needed momentum. However, it’s unlikely that we will see broad-based changes by local governments this year.