Sstate of the MHIndustry & Affordable Housing
Blog # 201 Copyright 2012 1 July 2012
Perspective. ‘Landlease communities, a.k.a. manufactured home communities, & before that, ‘mobile home parks’, are the real estate component of manufactured housing.’ GFA
State of the MHIndustry, & Affordable Housing Interest?
YOUR Mini ‘State of MHIndustry & LLCommunity Asset Class’
Part 1 of 2 parts
Every new home built in the U.S. today is fabricated, wholly or in part, within a factory! That’s right; modular home modules and HUD Code manufactured homes of singlesection and multisection configuration, are assembled in climate – controlled environments and production line fashion, drawing from inventories of lumber, appliances, and other building materials purchased in cost efficient bulk fashion. Panelized home and production (site) builders routinely use building components (e.g. exterior & interior wall panels; pre – hung windows & doors; roof, ceiling & floor trusses, to name a few) also fabricated in factories, then trucked to job sites for installation at appropriate times, during the erection and completion of these otherwise ‘stick – built homes’. *1
HUD Code manufactured housing in particular; what’s going on with that 5% market share segment of factory – built housing these days? In terms of new home shipment volume, not much. Back in 1972, the (then) mobile home industry shipped 575,940 new homes throughout the U.S.; and in 1998, at the peak of a short lived mini – renascence, 372,843 (now) manufactured homes. During recent years 2008 thru 2011, we’ve suffered through an average of 50,000+/- homes shipped annually. The future? With exception of regional shipment ‘hiccups’ due to natural gas fracking – spawned quick housing needs (reminiscent of the Katrina hurricane home replacement factor of a few years ago), not very bright. And it won’t likely improve significantly, until hundreds of thousands of devalued site – built homes are resold, chattel (personal property) financing returns en masse’ to manufactured housing, and many credit – worthy prospective homebuyers rediscover HUD Code manufactured housing and its’ landlease community lifestyle. *2
Even with all that said; according to the U.S. Census Bureau, in year 2010, 72% of all new homes priced below $125,000 were manufactured homes, with an average sale price, the following year, of $64,000.00. These stats alone suggest HUD Code manufactured housing continues to be the single most affordable, non – subsidized, high quality, energy efficient housing type available in the U.S. today! But does the federal regulatory agency, tasked to administer the federally preemptive HUD building code we operate by, market our affordable housing product as such? NO. Why? Ask them! And frankly, there’s more to this ‘affordability’ issue, and it’ll be covered in a coming paragraph.
So, what’s happening Today? Some, but certainly not all, HUD Code home manufacturers have segued from the Development Series Home (‘DSH’) designs (a.k.a. More ‘homelike’ & ‘big box = big bucks’! mindset) of the late 1990s & early 2000s – when ‘our housing bubble burst eight years ahead of the site – builders collapse’, to the smaller, less expensive 3BR2B Community Series Home (‘CSH’) designs (i.e. fabricated with durability – enhancing features like linoleum in key utility areas, non – plastic sinks & tubs, wood cabinetry, laminated flooring in lieu of carpeting, and more…) for siting in landlease communities. Today, CSH model HUD Code homes are marketed by Business Development Managers, a new job title and description for staff trained to sell directly to landlease community owners and property portfolio operators. *3
A continuing, unresolved conundrum for HUD Code manufactured housing exists in the manner in which national advocacy is handled, some say mishandled. A few large home manufacturer members of the Manufactured Housing Institute (e.g. Clayton, Champion, Cavco, et. al.) command the lion’s share of the national housing market for this type factory – built housing, and by dint of their dues contributions (i.e. floor fees), control the institute. MHI is also ‘home’ to all remaining segments of the MHIndustry, including the landlease community realty asset class. *4 At the same time, in our nation’s capitol, a larger number of smaller, mostly regional HUD Code home manufacturers are aligned with the Manufactured Housing Association for Regulatory Reform. The conundrum? How to effectively and routinely focus two disparate membership bodies on ‘best advocacy practices’ for the MHIndustry, when MHI is viewed, in this observer’s opinion, as being routinely conciliatory, and MHARR routinely confrontive, when it comes to interfacing with federal legislators and regulators of all stripes? Until that matter is ‘someday and effectively resolved’, the legislative powers in Washington can be expected to regularly play one side off against the other, to the detriment of all of us.
Another ongoing challenge to the hoped – for eventual return to widespread prosperity in the MHIndustry, is the continuing lack of a secondary or resale market for our unique housing product! This is a multifaceted challenge that involves home valuation (e.g. As long as federal agencies express their preference for ‘replacement and book value’ appraisals, we will not approach parity with site – built housing); lack of general access to multilist services enjoyed by Realtors®, despite U.S. Supreme Court ruling against exclusion in 2009. *5; reluctance to having our salespersons licensed; and, resistance to the escrowing of ‘closing’ funds.
And while we’re at it, might as well mention National Image Building & Housing Product Advertising. ‘Everyone else, it seems, does it’! Automobile manufacturers image build and brand advertise on a national scale; major homebuilders – when not in an economic slump – do likewise regionally. Why don’t ‘we’ do it at all? Oh, the excuses do abound, e.g. ‘Too much bad image to overcome!’ & ‘If all home manufacturers don’t participate in funding the ad program, my firm will end up subsidizing home sales for my competitors!’ & on & on). The dual core reasons for image and advertising inaction, in this observer’s opinion, are perennial corporate self – interest and lack of national leadership clout!
Why haven’t national federal regs, regarding home installation and dispute resolution; as well as Dodd – Frank legislation, and the like, been mentioned thus far? Because, for the most part, they remain in a state of flux. The former, ‘for years’ now (i.e. federal law in place, state regs codified, but enforcement mechanisms remain unfunded in states faced with severe fiscal challenges); the latter, apparently just now preparing to launch out into the hinterlands, looking for trouble to right and people to fine. Maybe next time around there’ll be substance to describe, but then again, maybe not…
Finally, the concept of ‘affordability’. Mention of which was made earlier in this mini – State of the MHIndustry message. But sad to say, ‘affordability’ is not the industry hallmark it once was, but still should be, even with a couple notable exceptions. Housing Affordability, in this observer’s opinion, has dissipated within the 1) manufacturing, 2) lending, 3) home retailing, and 4) landlease community segments of the MHIndustry! How so?
• Where home manufacturers are concerned, their obvious reluctance to move decisively away from the ‘big box = big bucks’ business model of the past (Observe the mix of DSH & CSH models next time you visit a MHTrade Show where new homes are exhibited!) and embrace the market’s need for smaller, less expensive homes.
• Where MHRetailers and 3) chattel lenders are concerned? Dire abuse of the 30% Housing Expense Factor or HEF (Where ‘a maximum of 30% of a homebuyer’s annual gross income, or AGI, should go to pay for their home and its’ annual utility bills, not including telecom services’). Homebuyers have been routinely encouraged to buy more home than they can truly afford! Here’s how. Instead of specifying 30% of their AGI (monthly) HEF be set aside (budgeted) for PITI (mortgage principal & interest, taxes & insurance) and utility bills collectively – as should be the case; we’ve engineered the entire 30% of AGI (monthly) HEF to be applied to PITI alone; on one hand enabling ‘their purchase of more house than they can afford’, and at the same time, forcing the homebuyer to pay his/her utility bills ‘in addition to’ said 30% HEF. End result, besides buying more house than they can afford? Setting them up to pay as much as 40 – 50% of their AGI for housing costs!
• And this ‘abuse’ becomes even more stringent when a new or resale home is sited in a landlease community where site rent has been raised out of sync with other single and multifamily housing alternatives in the same local housing market! There are several ways to estimate and quantify this balance and imbalance.*6
• Exceptions to this fourfold housing ‘affordability’ dissipation? There’re two. Manufactured housing’s ‘per square foot cost’ continues to be 50%+/- of site – built housing (not including value of underlying realty) cost; and some, if not many, landlease community owners today, routinely buy new HUD Code CSH model homes, directly from factories, to sell and self – finance on – site, at well below retail prices, including freight and set – up costs. Surprised? Don’t be.
This concludes the first part of this two part Mini – State of the MHIndustry & LLCommunity Asset Class.
Affordable Housing Purists & Enthusiasts Nationwide
There’s a new tagline, a third focus to my consultancy business signature these days. In addition to being Consultant to the Factory – built Housing Industry, and Landlease Community Realty Asset Class, I’ve long been, and am now publicly aligned, with Affordable Housing Purists & Enthusiasts Nationwide!
What’ s this mean? As I recently penned in correspondence to the ’18 New Pioneers & their Advisors’, “this is a nod to where I believe some of my post – landlease community consulting/publishing attention and effort will be focused’:
• It’s already one of three academic research foci for the new Center for Manufactured Housing Studies (‘CMHS’), the other two being ‘manufactured housing’ and ‘landlease communities’, e.g. maybe future ALLEN REPORTS.
• Remember the 2008 booklet, HOUSING AFFORDOGRAPHY, the ‘Study of Affordable Housing Formulae & Measures of Housing Affordability’? Not only did this publication ‘sell out’ by year end 2008, but it also spawned the popular ‘Ah Ha! & Uh Oh! Worksheet’, now used by HUD Code home manufacturers (i.e. ‘company stores’), independent ‘street’ MHRetailers, and in – landlease community home sales and self – finance operations. It’s time for a new and expanded edition of that book. *6
• I’ve been recruited to participate in a journalistic effort to retrieve ‘affordable housing’ from its’ near exclusive, some say hijacked, use by the low income shelter folk, returning it to meaningful utility by housing writers, academics, users and providers across the broad pricing spectrum.
Just wanted you to know. And if YOU too, have a significant and abiding interest in ‘affordable housing’, from theoretical, practical, and or academic perspectives, be sure to let me know. I’ll include you in a new and exclusive data base of affordable housing – minded businessmen and women across the U.S. today! *6
1. Production (site) builders, panelizers, HUD Code manufactured housing, and modular homes are the four descriptive terms given these types of factory – built housing by Don Carlson, publisher of Automated Builder magazine, and ‘Factory – built Housing Man of the Century’ (in year 2000)
2. Virtually every other segment of the new housing ‘keeps score’ based on volume of homes ‘sold’, not ‘shipped’. And the MHIndustry has only itself to blame for the departure of chattel financing, as well as near demise of independent ‘street’ MHRetailers (i.e. via their chasing the siren song of land & home package competition with site – builders, and home manufacturers buying – up and converting MHRetailers into ‘company stores’.
3. CSH and BDM innovations a direct result of HUD Code home manufacturers and landlease community owners/operators meeting together, for the first time ever, at the RV/MH Heritage Foundation’s Hall of Fame facility, museum & library in Elkhart, IN. @ 2/27/2009.
4. Non – manufacturer segments of the HUD Code manufactured housing industry: OEM & other suppliers, finance, state MHAssociations, LLCommunities, and MHRetailers. To join MHI as a dues – paying, direct member, phone Dick Jennison via (703) 558-0678.
5. United States of America (plaintiff) vs. Consolidated Multiple Listing Service (defendant). Case No. 3:08-CV-01786-SB. Judge Sol Batt, Jr.
6. For formulae and Rules of Thumb for determining whether site rents are indeed ‘in sync’ with other housing options in the same local housing market, and How To calculate new & resale housing Price Points using AGI, and AMI (Area Median Income) per postal zip code, phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764 or (317) 346-7156 or visit community-investor.com
George Allen, CPM®Emeritus, MHM®Master
Consultant to the Factory – built Housing Industry,
Landlease Community Real Estate Asset Class, &
Affordable Housing Purists & Enthusiasts Nationwide
Box # 47024, Indianapolis, IN. 46247 (317) 346-7156