George Allen / EducateMHC Blog Mobile Home & Land Lease Community Advocate & Expert

November 23, 2016

The Manufactured Housing Industry Tipping Point!

Filed under: Uncategorized — George Allen @ 7:28 am

Blog # 422 Copyright 2016 COBA7® 27 November 2016;

Perspective. ‘Land-lease communities, previously manufactured home communities, & ‘mobile home parks’, comprise the real estate component of manufactured housing.’

This blog posting is the sole national advocacy voice; official ombudsman & historian, research report & online communication media for North American LLCommunities!’

To input this blog &/or affiliate with Community Owners (7 Part) Business Alliance®, a.k.a. COBA7®, use Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

COBA7® Motto: ‘U Support US & We Serve U!’ Goal of its’ print/online media = to ‘Not only inform & opine, but transform & improve MHBusiness model performance!


This WHITE PAPER cum expose’ has been in the making for two decades. Its genesis going back to the mid-1990s (Read End Note # 9 for details). It’s only been, however, during the past 12 months, the manufactured housing ‘tipping point’ between manufactured housing being ‘affordable’ & ‘no longer affordable’, has become obvious to those who’re watching. And frankly, a real threat to not only the industry’s gradually recovering new home shipment volume, but the future of the manufactured housing industry and its’ land-lease communities going forward. So, as you read now…

Be Aware & Beware (that),

‘The Manufactured Housing Industry
Tipping Point,’

occurs when

‘reasonable rental homesite rates
& affordable housing values’

are supplanted by

‘higher rental homesite rates
& smaller PITI*1 payments’,

oft times resulting in

1) Diminished Buying Power for Purchase of New HUD Code Housing

2) Reduction in Existing Housing Value &

3) Fewer New Homes Shipped Nationwide


Stop here and ask yourself: ‘Is diminished buying power for new homes, reduction in existing housing value, and fewer new HUD-Code homes shipped nationwide, what we need or want for today’s recovering manufactured housing industry, its’ land-lease communities with vacant rental homesites to fill, and fewer prospective homebuyer/site lessees nationwide?’ Hopefully, your answer, like mine, is a resounding ‘NO’!

So, why is this even a question in today’s economic, business, and consumer climate?

To well answer that timely, telling, and challenging question, begin with a look at the larger U.S. housing picture, ‘compared with’ what we’re told in a column featured in the last surviving, advertising-supported, manufactured housing trade periodical.

First, this ‘big housing picture’, quoted from Multihousing Professional magazine, page # 38, for September/October 2016:

“More than one in every three people in the U.S. struggles with the high cost of housing – the highest level ever recorded, according to the State of the Nation’s Housing, from the Joint Center for Housing Studies of Harvard University report for 2016. The number of people living in households that pay more than 50 percent of their income for housing has grown to 114 million, according to the study.”

Lessons to be learned? Keep manufactured home monthly ‘PITI mortgage payment & site rent’ below the debilitating 50% threshold! Examples to follow will do so, using the 30% Housing Expense Factor or HEF. But remember this, ‘household expenses’ (e.g. water, sewer, heating, electricity), while they should be included within said 30% & 50% housing expense thresholds, are not generally factored into calculating PITI mortgage payments throughout the manufactured housing industry, and within land-lease communities! Consequence? By the time all household bills (mortgage, rent, & household expenses) are paid each month, households pay well beyond the 30% HEF, oft approaching that debilitating 50% threshold!

Back to our ‘housing picture’, with this manufactured housing and land-lease community related view, quoted from The Journal, page # 14, for October 2016:

“We believe the approximate national average for lot (site) rents in the U.S. is around $275 per month. That’s a ridiculously low number in a U.S. housing market that offers a median single-family option at $170,100 and an average three-bedroom apartment rent of $1,290 per month. We believe lot (site) rents could double and still remain highly affordable.” P.14. Quoted from Frank Rolfe’s COMMUNITY CONSULTANT column. (Emphasis added. GFA) Source of data provided in this paragraph? None provided by the columnist.

Well, let’s see how this view pencils out, using the following data reference points:

National Average Affordable Housing Market Rent = $849/unit*3

National ‘Area Median Income’ or AMI*2 = $52,000+/-*4

Land-lease Community site rent now = $275/month*5

Land-lease Community site rent doubled = $550/month*6

Standard ‘Housing Expense Factor’ or HEF = 30 percent*7

Chattel Capital Mortgage Terms = 9.5% @ 20 years

As we work through the following examples, keep in mind National Average Affordable Housing Market Rent is pegged at $849/unit – whether it be for a conventional garden style apartment unit, or manufactured home on a rental homesite in a land-lease community. In examples to follow, combined ‘home payment (i.e. PITI) and site rent below $849/unit, while certainly ‘affordable’, represents less ‘buying power’ or ‘less home & value’; than when combined PITI & site rent payment are above $859/unit, representing more buying power…

In the first instance, Using $52,000 AMI, a 30% HEF, and ‘low’ site rent of $275/month (See end note # 5), that leaves $1,025 to buy a new manufactured home (Compared to the present day $849/unit average), for around $122,181/month (figuring back in, a 10% down payment). However, ‘doubling’ the site rent to $550/month (See end note # 6), leaves only $750/month to buy a new manufactured home for around $89,400 (figuring back in, a 10% down payment). Clearly, a smaller ‘affordable housing market payment’ capability’ (i.e. PITI & rent), a.k.a. less ‘buying power’; ‘less home’; and, over time possibly, fewer new manufactured housing shipments nationwide.

As a related aside; to be competitive, savvy land-lease community owners/operators keep monthly ‘combined PITI & site rent’ payments 15-20% below (a.k.a. Schwep Rule of Thumb) or $50.00 below (a.k.a. Schrader/Smith Rule of Thumb) similarly-sized conventional apartment unit monthly rent rates, in the same local housing market.*8

In the next instance, using a more reasonable $36,000 AMI (Characteristic of the ‘newly wed & nearly dead’ traditional manufactured housing dual market), a 30% HEF, and again, ‘low’ site rent of $275/month, leaves $625/month to buy a new manufactured home (Again, compared to present day $849/unit average), for around $74,500 (figuring back in, a 10% down payment). However, ‘doubling’ the site rent to $550/month, leaves only $350/month to buy a new manufactured home for around $41,720. Here it is even clearer, how low to middle income individuals and households, with an AMI anywhere near $36,000, when faced with escalating rental homesite rents (i.e. ‘doubling’), as proposed in the reference cited in end notes # 5, will be faced with attempting to purchase a new manufactured home, using a monthly combined ‘PITI & rent’ payment well less than the present day National Average Affordable Housing Market Rent rate of $849.00/unit. In fact, it likely takes the prospective homebuyer/site lessee completely out of the new home market, able only to purchase – or rent, maybe, a resale unit in a land-lease community. Hence the result of ‘doubling’ site rent rates.*9

Point to all this? It’s this industry observer’s earnest and considered opinion:

The manufactured housing industry in general, & the land-lease community realty asset class in particular, are already at the ‘tipping point’ between continuance of a 70 year reputation as this nation’s primary source of non-subsidized, affordable housing and lifestyle; but once again (Recalling ‘the turn of the century & departure of easy access to chattel capital) endangering the industry’s gradual return to new home shipment prosperity!

For example:

1998 = 372,843 New HUD-Code homes shipped nationwide!

2000 = 250,550 Shipment slide & 16 year paradigm shift began…

2009 = 49,789 Community Series Homes debuted, & 25% of new home shipments went directly into (then) manufactured home communities nationwide by year end.

2015 = 70,544 Now 40+% of new HUD-Code home shipments go directly into (now) land-lease communities nationwide!

(2020) = Estimated 100,000 new HUD-Code homes to be shipped, with 75% going into LLCommunities! However, if the siren’s call for continued escalation (i.e. ‘doubling of’) rental homesite rates becomes regimen nationwide, expect new home shipment recovery to, once again, slow precipitously.

Is this what we want? Is anyone out there listening? What are you going to do about it?

End Notes

1. PITI = Principal, interest, taxes, insurance – but not including household utility payments.

2. AMI = Area Median Income, often pigeonholed by postal zip code, can be same $ amount as AGI or Annual Gross Income for a prospective homebuyer or household

3. U.S. Census Bureau

4. REIS, Inc., 2nd quarter, 2016

5. The Journal, October 2016

6. Ibid, end note # 5 doubled in size

7. George Allen, Book of Formulae, Rules of Thumb, & Helpful Measures, PMN Publishing, Indianapolis, IN., 2012, page # 39

8. Ibid, pages # 11 & 12.

9. There’s yet another ‘take’ on the matter of escalating rental homesite rents. Simply put: Until the REIT wave of 1994-95, (then) MHCommunity owners/operators oft used a 3:1 Ratio to estimate appropriate rental homesite rates in various local housing markets, e.g. Conventional 3BR2B apartment rent = $900/month; then 1/3 of that = $300/month, as starting point for one’s homesite rent. Well, as fledgling REITs struggled to satisfy Wall Street analysts lust for increasing dividends month after month after month (by trimming operating expenses, etc.), they eventually started raising rental homesite rates in a near flagrant fashion. To the point that, today, some – but – not – all large property portfolio firms appear to default to a 2:1 ratio, e.g. Apartments rate @ $900/month? Then land-lease community site rent @ $450/month. And all this would be understandable, and likely acceptable, except for one recent development. Specialty ‘market rent surveys’ describe SMSA (Standard Metropolitan Statistical Area) local housing market rents characteristic generally of ‘institutional investment grade’ land-lease communities (i.e. 200+ rental homesites), not including all the such properties located in and around the subject city. Result? Higher published ‘market rental homesite rates’ than would be the case if/when all LLCommunities were polled and reported. Negative consequence? Artificially high site rental rates published for various SMSA cities, provide ‘cover’ for all property owners to likewise raise their rents to match large property portfolio owners/operators. Remedy? Clearly label rental market surveys as being focused on ‘institutional investment grade LLCommunities’ only.

George Allen, CPM®Emeritus, MHM®Master
Box # 47024, Indianapolis, IN. 46247


No Comments »

No comments yet.

RSS feed for comments on this post. TrackBack URL

Leave a comment

Powered by WordPress