So Obvious An Answer is Rarely So Ignored & Misunderstood!
So Obvious An Answer is Rarely So Ignored & Misunderstood!
Manufactured Housing & Landlease Community Asset Class’ answer to:
Worst Case Housing Needs 2007: A Report to Congress – the U.S. Department of Housing & Urban Development’s (‘HUD’) office of Policy Development & Research (‘PD&R’) most recent biennial report.
But first, feedback from blog readers, responding to last week’s posting: ‘Time for a Change?’ Subtitled: ‘Days of the hammer & velvet glove may be over!’ It’s encouraging many in the MHIndustry & LLCommunity asset class, take time to read and respond to stimulating exposes and issue discussions. Here’s a typical response, received this week: “Great blog. Once again, the nail hits the head. This effort will need all the industry. The challenge is to convince the ‘egos’ they all need each other!” N
If you missed last week’s description of “…the independent initiative, outside MHI and MHARR political circles, to unify, influence, and improve how manufactured housing interacts with federal regulators (of the industry) in Washington, DC.” scroll back into the blog archive at this website, to learn what’s really going on ‘within & without’ the manufactured housing industry these days. Frankly; if you’re a stakeholder (i.e. entrepreneur or corporate business owner) YOU owe it to yourself, your employees, your peers, and your customers, to KNOW what’s affecting your business model and plan! No one else is going to tell you so clearly, what’ going on….
“Nearly 6 million households experienced worst case (housing) needs in 2007. This is an 18 percent increase from 2001, when only 5 million households faced this difficulty.” Now imagine how this 6 million households figure will swell, when year 2008’s housing trauma is written into HUD’s PD&R report Worst Case Housing Needs 2009, when it debuts during 2011! But back to the 2007 report. Here’re highlights quoted in RESEARCHWORKS, an online newsletter from HUD’s PD&R:
• 93 percent have severe rent burdens, the primary cause of worst case needs
• 73 percent have extremely low incomes
• 37 percent were families with children, 20 percent were elderly, 10 percent were non – elderly disabled, and 32 percent were ‘other’.
• Almost half of households with children had full – time employment
• 49 percent were non – Hispanic white; 21 percent were Hispanic; and 23 percent were non – Hispanic black
“The (PD&R report) study found the availability of housing stock across the nation is insufficient for the lowest income groups. For every 100 extremely low income households, there were only 76 affordable rental units available (those costing 30% or less of a household’s income). This lack of affordable and available rental units and severe rent burdens are the largest barriers to families experiencing worst case housing needs.”
OK, the ‘affordable housing’ problem (challenge or opportunity) has been clearly described in the previous paragraphs. Is there a practical, present day solution to ‘insufficient housing stock, across the nation, for low income groups’? Sure. There are several, if bureaucrats will take off their blinders (to practical, present day solutions) and look beyond their minions and lobbyists inside the Washington beltway. One of these has to do with HUD Code manufactured housing, in tandem with landlease (nee manufactured home) communities in suburban and rural areas of this country.
Clarification. Most discussions about use of new and resale manufactured homes, in tandem with landlease communities (‘LLCommunities’) in urban environments, will be moot. Low project density (e.g. five or so houses per acre) preclude use of this type subdivided or landlease property on high value realty, unless local housing market conditions prevail and homeowner subsidies are rampant. However, replacing derelict housing units, with compatibly – designed manufactured homes, can work economically; but usually on a case by case basis.
Setting land cost aside for the moment, know that HUD Code manufactured homes in year 2008 (latest year for this type statistic), on the average (among singlesection & multisection models) cost $41.34 per square foot, to fabricate in a factory, compared to stick – built homes, at the time, averaging $88.55 per square foot, erected on – site. It’s as simple and significant a $$$ difference as that, where housing construction cost is concerned! One wonders, why HUD doesn’t do more to promote this affordable housing alternative, especially since it’s been tasked with regulating the manufactured housing industry for more than 35 years(?)
Now, mate that ‘half price’, attractive, non – subsidized, quality, energy efficient, ‘green’, transportable home to a vacant rental homesite within a professionally – managed, well – located, LLCommunity, charging a fair, local housing market – sensitive site rent, and one has the potential of a WIN – WIN situation for the aforementioned low income group of U.S. homebuying/site lessee citizens! Here’s how…
The first WIN. Price of the home. Like most consumer product choices, there’s the opportunity to buy ‘top of the line’ (i.e. larger, fancier, most expensive home), mid price range, or economically (i.e. smaller, basic, least expensive home), depending on one’s annual personal or household income level, a.k.a. Annual Gross Income or AGI. The goal here is to keep monthly housing cost (i.e. PITI & utilities; or loan principal & interest, taxes & insurance premiums, as well as utility payments) in sync at 30+/- percent of one’s annual personal or household income level. Examples to follow.
The second WIN. Amount of site rent. Here too, consumers (homebuyers) will find ranges, oft but not always, based on landlease property location, features, amenities, and local housing market conditions (e.g. Area Median Income or AMI per local housing market postal zip code via zipskinny.com), as well as economic factors of supply and demand. The goal is to find a site and rent rate that melds with housing unit cost in an affordable fashion. Definition and examples to follow.
How can low income folk achieve this WIN – WIN proposition? The process involves knowledge (Think AGI and or AMI); a measure of affordability (i.e. In following examples, a 30% Household Expense Factor or HEF); a decision (i.e. Whether to use 75% or 100% of Household Expense Factor to pay P&I & site rent); amount of monthly site rent (When home is in a LLCommunity); and, home mortgage terms (e.g. payment, interest, term, loan amount) or monthly rental amount for the home per se (In addition to site rent).
Example. Given an AGI or AMI of $36,000; using a 30% HEF; with monthly site rent at $333.; and chattel mortgage terms @ 9.5% interest & 20 year term.
30% HEF of AGI/AMI’s $36,000 is $10,800; and, 75% of this amount, is dedicated to P&I + site rent @ $8,100/year (Balance of that amount to cover T&I, as well as household utility costs). $8,100 converted to monthly amount of $675; this covers $333 in site rent and $342 towards P&I of home mortgage. Applying 9.5% interest & 20 year loan terms, with $342 P&I payment, the maximum ‘affordable’ mortgage would be $35,690. Assuming a 10% down payment, this ups the maximum ‘affordable’ home purchase price to $40,767 or rounded, to $41,000. (See end note # 1 for worksheet)
Use 100% (vs. 75%) of HEF for P&I + site rent. Then, ‘running the numbers’, jumps the maximum home purchase price to a riskier $68,000. Why risky? Utility bills, factored into the initial calculation (i.e. residual 25% of HEF), but separated out here, still must be be paid – but outside the inclusive monthly payment calculation.
Bottom line? Depending on the nature and peculiarities of suburban or rural local housing markets, and presence (or not) of landlease (nee manufactured home) communities, it’s entirely possible (Happens all the time!) for someone, or a household, earning just $36,000/year, to buy a new or resale manufactured home priced between $41,000 and $68,000, where the site rent is approximately $333/month. There’s not a subsidized rent dollar in that mix! This everyday reality check ‘flies in the face’ of HUD’s PD&R report that “…found the availability of housing stock across the nation is insufficient for the lowest income groups.” Obviously Not True, according to these metrics! Is it possible someone (Everyone at HUD) simply isn’t looking within their regulatory milieu for practical answers? YES! Let’s watch, to see if anyone there, takes notice of this expose’ and initiates affirmative action to address their posit: “…lack of affordable and available rental units (being) the largest barriers to families experiencing worst case housing needs.”
Either the MHIndustry is stirring, preparing to rise Phoenix – like, during year 2011, or what? Given stirring, timely and motivating keynote presentations by industry leaders Randy Rowe and Dick Ernst, during the Networking Roundtable in September; and, with encouraging announcements, earlier this month at MHI’s annual meeting, about budgeting for outside lobbyists in 2011, plus hiring a new executive to head the National Communities Council (‘NCC’) division, it’s easy to wax positive for a change.
And when you add – in, this week’s meeting of the Urban Land Institute’s Manufactured Housing Communities Council (‘MHCC’), our industry’s de facto Think Tank, in Washington, DC., well – Anything Can Be About to Happen! Then, the following week, there’ll be a class of 25 professional property managers trained and certified in Salt Lake City, Utah, by ROC-USA; followed by a day long (chattel) Finance Seminar in Springfield, IL., facilitated by IMHA.
Need more positive indicators? How ‘bout the reconstituted Louisville Manufactured Housing Show, 13 & 14 January 2011? Bet you didn’t know there will be dozens of new homes, including Community Series Homes, on display there. If you’d like to display, as a home manufacturer, or supplier (Like me; I’ll be there!), simply phone (770) 587-3350 and talk to Dennis Hill, show coordinator. And that’s not all! On the 13th, there’ll be three sequential 45 minute seminars on these three timely topics:
• Given an individual’s AGI, and or local housing market’s AMI (See preceding paragraphs for descriptions), How YOU calculate maximum ‘affordable’ & ‘risky’ sale prices for new & resale, privately – owned homes of any type, sited on realty owned fee simple with home, or leased. What every manufacturer’s rep should know how to teach YOU, as a MHRetailer or selling homes on – site!
• Community Series Homes. Their genesis, definition and description, who manufactures them for in – LLCommunity siting, and how YOU can properly meld them into any local living environment.
• All YOU ever wanted to know about property owner or self – finance of new & resale home transactions on – site in LLCommunities; particularly, the differences between ‘captive finance’ and ‘buy here – pay here’ methodologies.
And, there’s more to come, after the Louisville Manufactured Housing Show! Read about those opportunities here, in future weekly blog postings. A hint. We’ve already told you about the possibility of Grand ‘Once & For All! Tours coming to your area in 2011.
But have you heard about the possibility of a third National State of the Asset Class (‘NSAC’) caucus, in Florida during late January or early February? Many LLCommunity owners/operators have requested a 1 ½ day program, to examine and discuss ‘property owner or self – finance, of new & resale home transactions on – site’ from their stakeholder perspective. Why? Three reasons. First, to learn more about the process alternatives, pro & con; second, to identify ticklish aspects of the process (e.g. regulatory issues, raising capital, selling – off paper, etc.); and third, the possibility this ‘new business model’ will alter the face of chattel finance for years to come, if not permanently.
Now, if all this, as they say, ‘floats your boat’, as a LLCommunity owner/operator, let me know during the next few weeks! No significant response = no 3rd NSAC caucus; however, much response = a 3rd NSAC caucus, ‘by invitation only’, this Winter, and somewhere in Florida, preferably on – site in a LLCommunity! Respond to this blog directly, via email, or phone the MHIndustry HOTLINE: (877) MFD-HSNG or 533- 4764 or (317) 346-7156. Use the same means to respond to matters covered in this blog posting as well!
1. For a free copy of the widely – used ‘Ah Ha! & Uh Oh!’ worksheet that “…estimates recommended ‘affordable’ & ‘risky’ purchase prices for new & resale, privately – owned homes of any type, sited on realty owned fee simple with home, or leased!”, phone the MHIndustry HOTLINE: (877)MFD-HSNG or 633-4764, or respond directly to this blog posting via this community-investor.com website.
George Allen, Realtor®, CPM®Emeritus, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class
Box # 47024
Indianapolis, IN. 46247