Changing Rules for Affordable Homes in Opportunity Zones

affordable homes in opportunity zones fair housing manufactured housing
Fairfield Manor, Morgantown, W.V.

In March, UMH Properties CEO Sam Landy introduced a letter to the Senate Finance Committee in support of potential changes to opportunity zones that would allow for an influx of much-needed affordable housing.

An opportunity zone is a geographic area designated by the United States government where certain investments can receive preferential tax treatment in order to spur economic development and job creation in economically distressed communities. These zones were created as part of the Tax Cuts and Jobs Act of 2017.

Investors who invest capital gains into Qualified Opportunity Funds that then invest in qualified businesses or properties within designated zones may be eligible for tax benefits, such as temporary deferral, reduction, and even elimination of the capital gain on the funds investment if held for 10 years. The purpose of this program is to encourage investment in underdeveloped communities and provide investors with a tax incentive to put their capital to work.

In a conversation with MHInsider, Landy said he and his team conducted a field survey of opportunity zones that would be viable locations for manufactured housing.

“There are manufactured home communities in opportunity zones that need to be upgraded and promising properties where we can raise money to build new communities,” Landy said. “We have identified $100 million in investment opportunities in six months, and we continue to survey new areas.

The lone caveat in taking advantage of an opportunity zone for manufactured housing professionals is the requirement that investment must come from a capital gain realized within the last 180 days.

“What does it matter where the money comes from when we’re talking about satisfying a need that everyone agrees on in affordable housing?” Landy asked.

The language change as proposed is captured in a simple 54-word appendix to the code:

(d) Additional Flexibility for Investments in Manufactured Home Communities

Investments in manufactured housing communities that meet all other requirements of this section shall be eligible for the tax treatment in subsection (c), notwithstanding a failure to meet the requirements of subsection (a)(1)(A) of having a gain during the 180-day period prior to such investment.

“We know everyone is interested in much-needed new housing, so we’re simply asking to waive that 180-day requirement for this reliable type of housing,” Landy said. “It’s going to fall right into the investment horizon for those interested in our efforts.”

The March 7 hearing on “Tax Policy’s Role in Increasing in Affordable Housing Supply for Working Families” was called by Chairman Sen. Ron Wyden, (D), of Oregon, and Ranking Member Mike Crapo, (R), of Idaho. In addition to testimony provided by UMH and Landy, the Manufactured Housing Institute provided its support for the potential change, and suggested support for manufactured housing in other areas of the tax code.

“MHI also asks the Committee to explore ways to make current tax incentive programs more effective in generating investments for manufactured home communities,” MHI stated for the record. “Manufactured home communities are a critical affordable housing model. Because of the financial and lifestyle benefits of owning a manufactured home versus the limitations that come with renting an apartment or buying a condominium or other site-built home, millions of individuals and families have chosen to live in land-lease manufactured home communities.”

The industry awaits discussion on the bipartisan topic of reducing barriers for affordable housing and the potential for a bill on the change in opportunity zone requirements.

“As much as anyone can be optimistic that legislation is going to be adopted, we are optimistic,” Landy said.

What follows is a full, unedited republishing of Landy’s letter to the committee.

Written Statement of Sam Landy
President and CEO of UMH Properties

3499 Route 9 Suite 3C Freehold, NJ 07728 
Senate Finance Committee Hearing
March 7, 2023

“Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families”

I am pleased to submit this statement for the record for the March 7, 2023, Senate Finance Committee Hearing on “Tax Policy’s Role Increasing in Affordable Housing Supply for Working Families.”

I am submitting this statement in order to request that the Committee consider adoption of legislation to amend the existing Opportunity Zone statute to promote affordable workforce housing.

I am the President and CEO of UMH Properties Inc., one of the premier owners and operators of manufactured home communities in the Nation.  UMH Properties is publicly traded on the New York Stock Exchange. We currently own 135 manufactured home communities in 11 states with approximately 25,700 developed homesites. Seven of our communities are currently located in Opportunity Zones.  I have worked in the manufactured housing industry since 1985 and have been President of UMH Properties since 1994.

UMH Properties has a 55-year history of providing quality affordable housing in manufactured home communities. Videos of our communities are available on our website and showcase the high-quality affordable housing that can be delivered through investment in manufactured home communities. We rent 1,000 sq.ft. three bedroom, two bath, modern, energy efficient, vinyl sided, shingle roofed homes on 5,000 sq.ft. lots for $800 per month and up, to families with household income of $32,000 and up. We also sell both single section 1,000 sq.ft. homes and 1,800 sq. ft. multi-section manufactured homes to people who buy the home and rent the lot. Those homes sell from $80,000 to $250,000 and have lot rents as low as $400 per month in our community.

Manufactured housing is the most affordable homeownership option available for low- and moderate-income families in America.  The average income of a manufactured home buyer is $35,000 – while the average income of a home buyer buying a site-built home is over $100,000.   Residents of manufactured home communities consist of people of all ages, family status, and incomes. We find that many residents seek manufactured housing based on the lower monthly payment derived from owning a financed manufactured home and renting a lot in a community as compared to owning land for the home and paying a mortgage and taxes on that land or renting an apartment or buying a house. Other residents use the proceeds of the sale of an existing home to pay all cash for a manufactured home and then only pay the lot rent. And other residents do not have the down payment or other ability to qualify for financing the purchase of a manufactured home and chose to rent the manufactured home. Further many people see themselves as needing a short term, less then three-year, affordable housing solution and see renting a manufactured home in a community as the best lowest cost solution. Since 2011 we have rented over 9,000 manufactured homes for monthly rent as low as $800 per month.

Manufactured home communities – also known as land-lease communities – are a critical model for the delivery of affordable manufactured homes.  51% of new manufactured homes are currently being placed in manufactured home communities.   There are more than 43,000 land-lease communities in the U.S., representing almost 4.3 million homesites.   These communities offer sites for families to place their manufactured homes, with professional management of the community and amenities that go with it.

One of the greatest challenges facing older manufactured home communities is the need for an infusion of funds to address neglected capital improvements like roads, sewer, and water.   UMH Properties has been highly successful in purchasing aging manufactured home communities in need of significant capital repairs – in order to modernize them and thereby protect the value of the investments of the manufactured homeowners living in those communities at affordable land lease rental rates. Further we add rental homes to fill the vacant lots in those communities and increase the supply of affordable work force housing in the community.

These purchases and improvements of aging communities require significant investments.  UMH Properties has a total market capitalization of approximately $2 billion, with gross revenue of over $190 million per year. UMH invests over $70 million a year in new rental homes and capital improvements to improve our manufactured home communities. These investments allow us to provide our residents with the highest quality affordable housing at the most reasonable rates. UMH shareholders include the pension funds that our residents have equity interests in.

UMH has successfully renovated and upgraded seven manufactured home communities in opportunity zones and sees the brilliance of the idea of tax incentives attracting capital to previously underinvested areas of the country. UMH’s experience in opportunity zones and renovating communities in Nashville and Memphis convince us that the concept of providing investors who make ten-year investments in affordable housing in opportunity zones with tax benefits results in the increased supply of badly needed affordable housing and further attracts employers and additional jobs and tax revenue to areas of the country that previously suffered from economic stagnation.

   UMH believes that the current opportunity zone fund law could be amended slightly so that far more meaningful investment is made in affordable housing in opportunity zones. Our experience is that the existing law inadvertently limits the pool of capital available to create affordable housing in opportunity zones by requiring those funds come from existing capital gains. That requirement is the basis for the criticism of the opportunity zone program only being available to the wealthy who have capital gains. We believe opening up affordable housing investments through opportunity zones to all investors will greatly increase the pool of capital flowing into opportunity zones to create affordable housing. 

  It is our opinion that the greater the supply of funds invested in affordable housing in opportunity zones the quicker the area will become economically able to be self-sufficient from growing tax revenue that employers seeking the quality work force a supply of affordable housing will bring to the areas provide.

We therefore seek removal of the existing opportunity zone requirement that investments be a reinvestment of funds from a capital gain realized in the preceding 180 days provided the investment is for affordable housing through manufactured homes in opportunity zones. With this amendment any funds invested in affordable housing in opportunity zones should receive a stepped-up basis if the investment is held for ten years or longer. Legislatively, this could be achieved in a simple manner, by creating a short new subsection in the statute that would grant authority for this. We have attached a draft of our proposal.

With this change, we are confident that UMH Properties and other manufactured home community operators could access significant new investment funds to help build and modernize communities in opportunity zones nationwide that facilitate the most affordable housing option available, manufactured homes.   

This approach is narrow and targeted.  It would not facilitate investments that could be criticized as deviating from the objectives and intent of the Opportunity Zone program.  It is limited to investments that facilitate affordable manufactured housing- a high priority for Congress and the Administration and an important public policy objective.  

 Finally, it would not allow investors to access the deferment and potential permanent elimination for capital gains that have already taken place.  Since the latter is the most costly component of Opportunity Zone tax treatment and since the proposed flexibility is narrowly targeted to a specific limited activity, we believe the tax scoring cost of this provision would be very small, while the societal and economic benefits would be substantial.

I also understand that inflation is currently creating hardship for some resident homeowners in manufactured home communities due to rent increases and I’d like to address that issue based on my 47-year experience in the industry. The solution to the problem regarding newly built communities is to follow the Florida policy of requiring a prospectus from the community owner disclosing all potential fees and rent increases before a person purchases a home or moves it into a community. That prospectus coupled with a long-term lease that matches the term of the loan on the home results in fairness for the community owner and the resident. In the case of UMH new home buyers are offered  a long-term lease, usually 20-25 years,  that allows rent increases of CPI or 5%, whichever is more, plus pass through of increases in water, sewer, garbage and taxes. This results in reasonable rent increases that cause minimal to no friction between UMH and our residents. Except for the 2009-2011 period anyone who bought a home from UMH was able to sell it for more than they paid us for it, provided they properly maintained it.

Regarding existing communities there are laws on the books in most states prohibiting unconscionable rent increases. Further there is a covenant of good faith and fair dealing in all contracts. There are 43,000 existing communities and I am certain the problems you hear about pertaining to rent increases are coming from a very small percentage of those communities.

In closing, I thank the Committee for the opportunity to submit this statement and I would be happy to make myself available to Committee staff to discuss this initiative in more detail.