Simple, Practical Plan to Restore Affordability to Manufactured Housing & Landlease Community Living!
Finally, a Simple, Practical & Timely Plan to Restore Affordability to Manufactured Housing and Landlease Community Living!
Important Notice. For background information on this potentially industry – saving topic, reread the past two weeks of blog postings, archived at this website (community-investor.com), before heeding this week’s message:
‘Let’s Replace the GOLD RULE with the GOLDEN RULE in 2012’
‘Restore Affordability to Manufactured Housing, Lending, & within Landlease Communities, to Sell More New Homes during year 2012’
Paraphrasing some contemporary American heroes, who courageously and with finality, on 9/11/2001, proclaimed: ‘Let’s Roll!’; are WE, as a dying industry and struggling realty asset class, as corporately courageous to avert own finality, by committing to ‘Let’s Recover!’? IF SO, the following, across industry segments Restore Affordability solutions, for manufactured housing and landlease (nee manufactured home) communities, comprise our best path to restoring housing market share! While simple and practical in concept, there’s no question but that it’ll be difficult to break bad habits, even tradition in some cases, as these industry segment steps require:
1. According to the Manufactured Housing Institute (‘MHI’), 80 percent of all new HUD Code manufactured homes are built and shipped by two factory – built housing firms, both of whom are major, dues – paying manufacturing division members of the institute.*1 By year end 2012, and by dint of their obvious national market domination, they could and should agree, to cease building Developer Series Homes (i.e. the ‘big box = big bucks’ multisection, full – featured models) unless already sold, or designed and ordered in advance of production, as well as ensure said homes are affordably – priced. At the same time, build more Community Series Homes (i.e. smaller multisection and singlesection homes with durability – enhancing features) to be aggressively marketed to landlease (nee manufactured home) communities throughout the U.S., helping fill the estimated 250,000+/- vacant rental homesites contained therein. Who to lead this industry – saving effort? Well, there’s….
2. Independent ‘street’ MHRetailers, even ‘company stores’, are no longer the dominant ‘players’ of years past, as their collective number, according to MHI, is down, nationally, from 11,500 to only 4,000 sales centers.*2 MHRetailers could and should take this 60 year new home shipment slump as ‘an opportunity and motivation’ to revamp their business model away from hawking units like automobile dealers, and commence marketing and selling new homes like Realtors®! Until MHRetailers do this – and now is indeed ‘the time to do so’ – how can we, as an industry, complain that HUD hasn’t fully implemented the Manufactured Housing Improvement Act of 2000 (a.k.a. ‘MHIA@2000’), legislation designed and passed more than a decade ago, to wean us from our vehicular heritage and into the overall housing industry? Who to lead this industry – saving effort? Well, there’s….
3. Independent, third party chattel (personal property) lenders have the conundrum of effecting, at the same time, the easiest and most difficult restore affordability tasks of all. In principle, revamp the nature of loan originations and underwriting, ensuring new and resale homebuyers aren’t mortgaging more home than they can truly afford, at the time of the sales transaction. In practice, this means returning to the original composition of the traditional 30 percent Housing Expense Factor (Where 30% HEF = 30% of homebuyer’s annual gross income or AGI is earmarked for ‘household expenses’*3), this being inclusive of mortgage principal and interest payment amounts, along with escrowed taxes and insurance, and household/utility expenses not including telecom services. While easy enough to describe, it’ll be difficult for lenders to restore an estimated 25 percent of the contemporary 30% HEF factor, for household/utility expenses; effectively ending the reality of homeowners paying these necessary bills ‘above and beyond’ the 30% heretofore used just for PITI. In effect, this past (still present) practice created a shadow HEF factor much higher than the 30 percent ‘affordability’ guideline. Who to lead this industry – saving effort? Well, there’s….
4. Landlease community owners large and small; whether property portfolios or single property owners like me. There’re three restore affordability tasks here. One has to do with ensuring the rental homesite rent is indeed ‘in sync’ with other forms of multifamily rental housing in the same market.*4 Another has to do with reallocating the traditional 30 percent Housing Expense Factor, in the manner described in the previous paragraph. And a third has to do with how the prospective homebuyer’s combined monthly mortgage (i.e. to be comprised of PITI & household/utility expenses) and homesite rental amount, compares with site – built housing in the same local housing market.*5 Once these benchmarks and changes – as necessary, are in effect; we’ll, as an asset class, be well on our way to restoring affordability to landlease communities nationwide. Who to led this industry – saving effort? Well, there’s….
So, there you almost have it. A simple, practical, timely plan to Restore Affordability to manufactured housing and landlease community living in six steps, spread among four segments of the HUD Code manufactured housing industry. What’s missing at this point? Three things: an open and serious discussion of the plan and its’ requisite steps; commitment among all applicable segments of the industry, to make said changes;
and finally, the elected, selected, and salaried leadership necessary, to pull it off. Are YOU one of those leaders ‘waiting in the wings’, for the clarion call to ‘Let’s Recover!’?
This week I didn’t name names at the end of the four numbered paragraphs, but will tell you this: Among HUD Code home manufacturers, there’re three, maybe four individuals who could and should restore affordability to their segment. Among MHRetailers, there are no champions, that I know of, to lead this effort. It’ll have to be a business culture change, even a paradigm shift, brought about by recognition that the manufactured housing industry is in ‘survival mode’ right now, and if this plan doesn’t work, it’s likely nothing else will either – short of a massive dumping of chattel capital into our type housing. Among lenders? Anyone who deals with chattel finance knows who these ‘four plus one’ leaders are. And on the landlease community side? In my opinion, it’s gotta start at the very top, with the largest of our property portfolio owners/operators, setting the restore affordability pace for the rest of us, hoping for a trickle down effect among the 50,000 landlease communities nationwide.
Are YOU on board? As always, anxious and open to hearing your opinions and ‘take’ on this simple, practical and timely plan to restore affordability to manufactured housing and the landlease community real estate asset class. Reach me via email@example.com, the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or (317) 346-7156 & GFA c/o Box # 47024, Indianapolis, IN. 46247.
1. Per Congressional Hearing transcript @ 2/1/2012 re: Manufactured Housing Improvement Act of 2000.
3. HOUSING AFFORDOGRAPHY, ‘Study of Affordable Housing Formulae & Measures of Housing Affordability’, PMN Publishing, Indianapolis, 2008.
4. How to know whether LLCommunity rental homesite rate is truly ‘in sync’ with other forms of mulitifamily rental housing in the same local housing market? Perform two separate Market Surveys. First, survey conventional apartments in the same local housing market, researching just 3BR2B units. Calculate their average monthly rent, e.g. $9000.00/month, then divide by 3 (divide by 2.5 if subject LLCommunity is located inside an interstate beltway around an SMSA city) to estimate what average rental homesite rate might/should be; in this case, around $300.00/month. Second Market Survey is of similar (i.e. size, condition) landlease communities in the local housing market, including the subject LLCommunity. Then ask oneself: ‘How do these rental homesite rates individually, and in toto, compare with the subject property per se, as well as the result of the 3:1 Rule just cited? Two other Rules of Thumb include: The Schwep Rule = total monthly payment (loan & site rent together) must be 15 – 20% less than monthly rent rate for a conventional apartment in the same local housing market to sell manufactured homes onto rental homesites. Also, the Schraeder/Smith Rule = total monthly payment (loan & site rent together) must be at least $50.00 less than monthly rent rate for a conventional apartment in the same local housing market to sell manufactured homes onto rental homesites.
5. Here’re a few well known Rules of Thumb for ensuring one’s manufactured housing transactions, real and anticipated, fare well, when compared to site – built housing in the same local housing market:
• AGI or Area Median Income (‘AMI’) X 3 = affordable land and home deal $ max
• AGI or AMI X 4 = ‘risky’ land/home deal $ (Where to get AMI? Zipskinny.com)
• Income – to – Home Value Ratio or IHVR, a Realtor® Rule of Thumb; where ‘median home value’, for any given market, is divided by prevailing AMI (for that local housing market), to calculate the IHVR factor, e.g. $172,134 national median home value in 2010, divided by $51,229 national AMI during same year, = national IHVR of 3.36. Note how this IHVR of 3.36 falls comfortably in between the first two Rules of Thumb cited here in end note # 5, or factors 3 & 4. So, on a national level, multiply one’s AGI by 3.36 to estimate max affordable land and home deal $. *** George Allen, CPM®Emeritus, MHM®Master
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024, Indianapolis, IN. 46247