Rent control for manufactured home communities (MHCs) can be substantially different than it is for apartments and other forms of housing. In California, we have 40 years of experience with manufactured home community-specific rent control.
Although rent control for other types of housing is strictly limited by California law, the state preemption has never applied to MHCs. Without those limits, every California city and county has been free for decades to enact its own form of MHC rent control, or not. This has resulted in dozens of variations and combinations of a few key tools that are used by local governments to set MHC space rents. What has resulted can provide forewarning to other parts of the country, and can be used to navigate rent control proposals that may be impending in your locale.
This article will be the first in a series that will explain the most common elements of manufactured home community rent control systems. If rent control has not yet come but is being debated in your area, understanding the possible components and their operation can help you learn the most important issues to address when advocating for yourself and other MHC owners. If you are considering whether to invest in a rent-controlled community, knowing what is and what is not possible when trying to increase rents will give you your best evaluation of its potential value. And if you already own a rent-controlled MHC, you may learn that your rents could be higher.
The Details on Vacancy Control
One of the most onerous elements in MHC rent control is vacancy control. With full vacancy control, the rent for a space cannot be increased when a resident sells their home to a new resident — the rent for all spaces remains fixed except for annual, uniform adjustments. Vacancy control is probably the worst potential component of rent control, effectively preventing any space rent from ever catching up to the market. Over time, it can result in community rents at half of market value or less.
Vacancy control also creates a dangerous entitlement that, once granted to residents, becomes nearly impossible to take away. Because of the guaranteed low rent and restrictions on future increases for the space, the selling homeowner can command a premium for their home, effectively capitalizing the future rent savings for the new homeowner into the price of the home.
Vacancy Control Transfers Property Value to Homeowner
In California, a 40-year-old home in poor condition can sell for $200,000 or more because the rent for the space is extremely low. Yet, the value of the MHC to its owner is drastically suppressed because of the below-market restrictions on rent.
Vacancy control provisions effectively transfer the value of the manufactured home community from the landowner to the homeowner. And once the transfer begins, homeowners will complain that any reduction in rent control will reduce their “equity” in the home they (over)paid for.
Vacancy control can take forms less than “total”. In some jurisdictions with “partial” vacancy control, rent can be raised a small fixed percentage upon a vacancy, usually 10 percent. This can make a significant difference over time. Others will allow the rent to be raised upon a vacancy to a fixed reference point, such as the highest comparable space in the community. Those systems leave more room for strategizing, but also can drag on rents.
Vacancy control cannot be rationalized by the typical justification given for MHC-specific rent control. The “captive audience unable to move their home” explanation usually given for MHC-specific rent control does not explain why a community owner should not be permitted to increase the space’s rent to market when the home is sold to a new resident.
Full vacancy control is typical in most California MHC rent control jurisdictions, and it is the most pernicious. If rent control is being debated in your community’s jurisdiction, vacancy control is probably the most important component to fight. If the community you own or are considering buying is under vacancy control, understanding the remaining components of the rent control system becomes critical.
Stay Tuned for More Perspective on Rent Control
The next articles in this series will explain other aspects of MHC rent control systems. They will also demonstrate how, when the rules are fully understood, you can use the system to maximum advantage.
Our Insider Sources from Six Industry Leading Organizations
BessireCallaghanHortonKassabNewbyRogosich
Many fee-based management companies are seeing an increase in demand for their services from owners of manufactured housing communities.
One of the drivers of the increase is the growing number of capital investors purchasing these properties — investors who have no experience managing land-lease communities. In other words, they need managers who have that experience, said Maria Horton, director of marketing for Newport Pacific, which manages 119 MH communities in 13 states.
Fee-based management comes in many forms
Horton defined fee-based management this way: “A contractual agreement between ownership and the property management company for oversight, development and betterment of a community.”
Some agreements only require management to collect rents, and report any problems to ownership. Other agreements ask management to handle all issues in the community, and only notify ownership with a periodic financial report, Horton said.
“It is truly in the hands of ownership as to what responsibilities the management company will assume,” she said.
Fee-based management companies charge clients in different ways. Some charge a percentage of gross rents, others charge a flat fee across the board. Newport Pacific charges monthly, either 4% of gross rents or a $3,000 fee — whichever is the greater amount, Horton said.
Fee-based management can encompass many tasks beyond collecting rents. Newport Pacific’s on-site managers, for example, oversee maintenance projects, issue legal notices for unpaid rent and park violations, and seek legal assistance when necessary. They prepare paperwork for tenant screenings and, when applicable, compile lease or rental agreements. They also do property inspections and inform tenants of items that need to be addressed. If ownership wishes, Newport Pacific can fill available mobile home lots in a community, either by renting park-owned homes or selling new homes, according to Horton.
Fee-based management companies can alleviate labor complications and liabilities for community owners by taking responsibility for all employment issues. For example, all managers and maintenance staff are hired as employees of Newport Pacific, Horton said.
Other Perspectives of Fee-Based Management
MHInsider queried other executives of companies that perform fee-based management services. Their answers are below.
There seem to be more companies providing fee-based management services for manufactured housing communities than there were a decade ago. Do you know why?
R.C. “Dick” Bessire, president of Bessire and Casenhiser:
Owners are getting older. They can’t keep up with all the new rules and laws, so they’re turning to professional management.
Todd Newby, president of Newby Management:
We receive several calls a month from community owners and/or investors looking to purchase manufactured home and RV communities who would like to speak with us about managing their community. Most of the investors calling us for management services make their living in other professions and rely on us to manage the day-to-day tasks for their community investment.
Michael Callaghan, managing partner of Four Leaf Properties:
The demand is massive. The influx of private equity firms into the space — particularly over the last five years — has opened a huge market for fee-based management. As all the newcomers to the space quickly learn, there is nothing easy about the MH business. It is a highly specialized, management-intensive business that requires a lot of expertise. You really cannot overstate the nuances.
The other lever that is often overlooked is technology. I like to comment that running an MH community is like running a car dealership and horizontal apartment complex all in one. You’re managing tenants and a piece of real estate while also acquiring, selling and financing homes. Good luck finding software on the open market that addresses all those needs! The best operators have built proprietary technologies and systemized platforms that rationalize those needs. Bottom line: You can’t operate these types of complex business models on the back of QuickBooks.
John Rogosich, CEO of MHPI Inc.:
The manufactured housing industry has become more sophisticated. Senior management and community managers now have designations as Manufactured Housing Manager and Certified Property Manager. These designations in turn require operating the MHC at a higher level of expertise, replacing the “mom & pop” mentality. We are closing the gap between apartment and mobile home community living due to the sophistication.
Mark Kassab, senior vice president of M. Shapiro Real Estate Group:
Many manufactured home communities that were owned by “mom and pop” operators over the past decade are being purchased by private equity groups and investors, thus resulting in a need for experienced management companies. Our company’s growth to approximately 15,000 fee-based manufactured home sites is split almost evenly between large private equity firms and private investors. The fee-based management growth has been attributed to the learning curve that owners want to avoid when buying a community. A strong fee-based management company will eliminate the learning curve and result in increased revenues with a reduction in expenses through efficiencies, all of which increase the value of the community.
What sort of services do fee-based management companies provide for manufactured housing communities?
Bessire:
For “mom and pop” operations, we basically do full service. We hand them a statement at the end of the year, and they turn the whole operation over to us. They trust us to comply with laws and maximize returns. We also manage for nonprofits. The bigger owners just want stable management they know they can grow with.
Newby:
I can’t answer for other management companies, but we provide a complete management service.
Callaghan:
Of course — taking payments, posting rents, managing facilities, maintaining the community — those are all the simple ones. Those are generally done for a percentage of total rents collected.
The more complex services involve improving/constructing lots, ordering and setting homes, rehabbing used homes, marketing (digital, online) and sales management. Those services tend to be more commission-based and can even look more like a joint venture. The market is finally starting to recognize that there is huge value in partnering with people who understand how to in-fill. With cap rates at their current levels, most rent-paying lots are worth 25-50 percent more than they were just a few years ago. Partnering with a seasoned operator only makes sense when there’s this much demand in the market and still so much capacity. The opportunity cost of letting lots sit idle is simply too high.
Kassab:
A strong fee-based manager should be able to provide a turnkey solution to the community owner, handling all day-to-day management operations. This includes the collection of rent and security deposits and bank account reconciliations of expenses. The overall physical appearance of the property, evaluation, and training of all on-site employees, and the implementation of a marketing strategy to increase the overall occupancy of the property is a fundamental key to success.
Investors should look for a management company that manages all the repairs and capital improvement projects, employee oversight, and tenant applications. Of great importance is bringing new homes to the community and renovating/refurbishing the homes for sale/rent to increase community occupancy. Creating a web page and having proper flyers prepared for the homes available is essential to a community operation. The strategies used by an experienced fee-based manager will improve landlord/tenant relations and bolster resident involvement, thereby reducing tenant delinquencies and accounts receivable at the property. A fee-based management company must provide the full menu of services in order for an investor to see the value.
Which of those services does your company provide?
Bessire:
We’re full service. We also do brokerage work.
Newby:
As a third-party management company, we provide complete management for manufactured home and RV communities. Complete management for us includes the following: Day-to-day operations, rule enforcement, negotiate and manage service contracts, track insurance for vendors, attend meetings with residents, background check applicants, oversee insurance policies and risk audits, regular management reports, maximize tenancy through proven programs, oversee the rent increase process, full accounting, full human resource management, resident relations, marketing and sales, brokerage services, chaplaincy program and emergency services.
Callaghan:
We provide them all, but our primary emphasis is working with operators who need to in-fill lots at a considerable level. We’re unique in that we have an embedded mortgage loan origination company, and a loan technology platform, that we offer. That enables us to be a turnkey partner — everything from basic property operations all the way through to providing a digital platform for marketing, sales, loan origination and financing. Our primary operating partner is one who needs to bring in a lot of homes, has a lot of growth potential, and needs a comprehensive solution. We’re on the opposite side of the spectrum from the classic “charge a fee and keep the lights on” manager. We want to build a lot of value for our select partners and we want to leverage our platform.
Rogosich:
The services we provide are accounts receivable, accounts payable, budget planning, ordering homes, hiring management and maintenance personnel, providing monthly and annual financial statements, and visiting the communities.
Kassab:
We provide comprehensive services in-house, all included in one fee! The proper operation of any community requires all of these services to be implemented in order for a manufactured community to achieve its maximum potential.
What are the advantages of fee-based management?
Bessire:
Professionalized management that maximizes returns for the individual investor or group. They don’t have to take complaints or negative calls from homeowners.
Newby:
Community owners can benefit from the investment in a community and not have to deal with the day-to-day operations while working in their chosen profession.
Callaghan:
I think an experienced property manager can out-perform an unseasoned one by 25-50% in the MH market. There are many flavors of MH communities, and there are many ways to derive value — through add-on services, better financing, operational efficiencies — as you move up the food chain. A seasoned management partner can move your property through that lifecycle and help you capture that value as you go. Simplistically, you don’t manage any two MH communities exactly the same way. They all have unique attributes that translate into accretive value if you know how to capture it.
Rogosich:
The advantage of fee-based management is an unbiased professional evaluation of the community. We can maximize the NOI and control the operating expenses. For example, within our company, our manager’s designation and experience will give the communities the resources they don’t currently have.
Kassab:
The financial advantage for an investor that utilizes an experienced fee-based manager should result in an increased value for that development. Many regions we manage have vendors that provide services to specific regions and fee-based managers with very distinct market knowledge in the areas they represent. An experienced fee-based manager will be involved with the state association, active with regional and national events that benefit the industry and are ahead of the curve on legislation that can impact the industry. We tell all of our clients, if they cannot see the value of the services we offer through increasing revenues, reducing delinquencies or reducing expenses, then we should not be hired.
Have you noticed a greater demand for fee-based management from MH community owners?
Bessire:
We’ve noticed an increase in demand. Here in California, I probably turned down 20 contracts last year. We only want to run things in a way that makes us feel comfortable. Some people want us to run the community just to make revenue, not to keep up the property. They just want you to get the dollars for them.
Newby:
From our perspective, demand has been the same for the last several years.
Callaghan:
The demand is off the charts. I take two or three calls a week from prospects. Unfortunately, many of the new arrivals are just getting started, so they are a little too small for us. Fortunately, consolidation is still continuing at a rapid rate, and as it continues many of those small guys are amassing large portfolios pretty quickly. The challenge is that those portfolios are typically geographically dispersed, under-resourced and lack economies. So, the demand is accelerating, but with it comes a need for more advanced and sophisticated solutions to address the new challenges.
We started our fee-based management program during the recession in 2008. In the past decade, we have grown to approximately 15,000 pads under fee management in 27 states. The calls seem to come in daily from owners looking for an experienced property manager.
Sun Communities, a leading national real estate investment trust (REIT) that owns, operates or has an interest in manufactured housing and RV communities, has entered into an agreement to acquire a 31-community manufactured housing portfolio for $343.6 million in a merger with Jensen’s, Inc.
The purchase price with adjustments will be paid through a combination of issuing common stock to Jensen’s shareholders and a cash payment.
The company acquires 31 communities with 5,230 developed home sites and better than 460 available expansion sites. Sun’s new communities are located in eight states with more than a third of the sites in the state of Connecticut. Seventy-seven percent of the communities are age-restricted. The portfolio was 92.5% occupied as of June 30.
“This acquisition is a great opportunity to further grow our manufactured housing portfolio with high-quality communities that match our investment criteria,” said Gary A. Shiffman, Sun Communities Chairman and CEO. “We are very excited to add the owners of Jensen’s as shareholders due to their belief in our ability to create ongoing value.”
The total purchase price is $343.6 million includes an allocation of approximately $8 million for expansion land and adjacent parcels ready for development. The purchase price will be adjusted at closing for prorations and certain other adjustments, including a reduction of approximately $60 million for debt that will be owed by Jensen’s as of the closing.
At the closing, Sun will issue to Jensen’s shareholders $274.8 million in shares of its common stock at an issuance price of $139.3072 per share based on a 20-day trailing volume-weighted average share price and pay the balance of the adjusted purchase price in cash.
The transaction is subject to customary closing conditions, and is expected to close by the end of 2019.
Kris Jensen, President of Jensen’s said, “After engaging in a thorough sale process for our portfolio, we are excited to be joining the Sun platform and to become Sun shareholders. We are impressed with Sun’s stellar reputation, successful track record of integration, and ability to operate their communities to the highest of standards.”
Datacomp has published its August 2019 manufactured home community rent and occupancy reports for six major markets in Southern California.
JLT Market Reports provide detailed research and information on communities in 178 major and midsize housing markets throughout the United States. Data includes the latest rent trends and statistics, marketing programs and a variety of other useful management insights.
Datacomp publishes the JLT Market Reports and is the nation’s #1 provider of market data for the manufactured housing industry. JLT Market Reports are recognized as the industry standard for manufactured home community market analysis.
August 2019 manufactured housing market data published in JLT Market Reports for Southern California include information on 505 “All ages” and “55+” manufactured home communities.
Altogether, the reports on the six markets’ manufactured home communities include data representations for 100,787 homesites.
“Manufactured home communities in the Southern California markets are showing a tremendous amount of stability in both rent and occupancy,” Datacomp Co-President and Chief Business Development Officer Darren Krolewski said. “Occupancy remains in the mid- to high-90s percentile everywhere. Occupancy reduced slightly in only one Southern California market and adjusted lot rent increases year-over-year spanned from 1.9 % to 4.9 %.”
More About JLT Market Reports
Each JLT manufactured home community rent and occupancy report from Datacomp has detailed information about investment grade communities in active markets. The detailed information includes:
Number of homesites
Occupancy rates
Average community rents, and increases
Community amenities
Vacant lots
Repossessed and inventory homes, and much more
JLT Market Reports also include management insights that rank communities by number of homesites, occupancy rates and highest to lowest rents. Established reports show trends in each market with a comparison of August 2019 rents and occupancy rates to August 2018, as well as a historical recap of rents and occupancy from 1996 to present date in most markets.
Each fully updated report for mobile home communities is a comprehensive look at investment grade properties within a market, enabling owners and managers, lenders, appraisers, brokers and other organizations to effectively benchmark those communities and make informed decisions.
John Carey, one of the 2019 Hall of Fame inductees, waves to his retail team to stand for recognition.
RV/MH Hall of Fame – Class of 2019
More than 400 manufactured housing industry and RV professionals gathered Aug. 5 at the RV/MH Hall of Fame in Elkhart, Ind., to celebrate a new class of inductees who expressed gratitude for the honor and a great amount of optimism for the future of the industry.
“I’ve never been more excited to give this address,” RV/MH Hall of Fame President Darryl Searer said prior to announcing that the hall has paid off all of its debt, phase one of the RV addition to the hall is nearly complete, and plans are being laid for a manufactured home museum.
“The progress I’ve seen in the last 90 days is incredible,” Searer told the inductees, friends and family who attended the dinner.
The 420 attendees who came to honor the new class arrived in Elkhart from no fewer than 25 states, the hall’s Ryan Szklarek said.
Raymond Broderick, of Superior Homes in Pennsylvania, gives his induction speech at the RV MH Hall of Fame in Elkhart.
Among the inductees from the manufactured housing industry was Raymond Broderick, of Superior Homes in Pennsylvania.
“This is such a great honor from a great industry,” Broderick said. “Our customers, their kids, their grandkids. This is generations of providing ‘The American Dream’.
“It’s true, if you choose a job you really love, you’ll never work a day in your life,” he said.
From left, Jess Maxcy, Maria Horton, Rick Robinson, Dick Jennison, and Lesli Gooch are among the 420 attendees from 25 states who came to Elkhart Aug. 5 to honor the RV/MH Hall of Fame class of 2019.
There are 407 RV/MH Hall of Fame Honorees
The latest Hall of Fame class, which brought in five new members from each of the manufactured housing and recreational vehicle industries, brings the number of professionals honored to greater than 400.
“To be mentioned in the same breath as all the folks on those plaques on the wall upstairs is a tremendous honor,” said John Carey, of Modern Home Sales and Midwest Homes in Topeka, Kansas.
Carey entered the industry for a second job in 1953.
“Little did I know it would turn into a lifetime occupation,” he said.
Carey opened his first dealership in 1986 and since opened a second location in the same market.
“Any business to be successful takes a lot of collaboration from many people,” he said, waving for his team to stand up. “I thank all you guys for your hard work and dedication.
“The homes have gotten bigger and better constructed,” Carey said. “But there are things about HUD code housing that have stayed the same… this industry is a lot of hard work, and it’s very rewarding work.”
‘I mean, you’re good but…’
Wally Comer of Adventures Homes applauds his fellow hall members.
“A lot of people warned ‘Wally, don’t do this… I mean, you’re good, but…” he told the attendees.
But Adventure enters its 10th year in business with three MHI manufacturer of the year awards (for a builder with three or fewer plants). And continues to win business by building homes the company’s customers are asking to have built.
“Our team does an absolutely fantastic job of getting that done,” Comer said.
Dick Ernst, an industry consultant and recently inducted Hall of Famer.
Dick Ernst, of Financial Marketing Associates Inc., said his induction came as a surprise.
“It wasn’t even on my radar,” Ernst said. “It’s not what I looked to achieve, and it is such a great honor.”
Leo Poggione, from Craftsman Homes in Nevada, is among the youngest entrants to the Hall of Fame.
“To be one of five people in the entire industry this year to be inducted into the hall of fame is a tremendous honor. I am so grateful for the support from so many people in this industry,” he said.
Leo Poggione, of Craftsman Homes, accepts his induction as one of the youngest ever recipients.
There are a pair of new opportunities available for potential home buyers, each offered by one of the government-sponsored enterprises, Freddie Mac and Fannie Mae. The programs — CHOICEHome℠ and MH Advantage®, respectively — have many similarities and some differences.
We’re here to compare and contrast the new programs, so retailers and potential home buyers have a better understanding of how the programs work and which may be the best fit for the unique circumstances of a specific market and individual buyer.
What Do the GSE Programs do for Home Buyers?
Under the Duty-to-Serve mandate, handed down to Fannie and Freddie by the Federal Housing Finance Agency, the enterprises are charged with opening up financing and boosting the availability of affordable housing options.
CHOICEHome and MH Advantage are results of that initiative, both specific to manufactured housing (among the many measures taken across the affordable housing landscape).
These programs, with a price point in the range of $200,000 to $250,000, are not designed for low-income borrowers. They’re meant to be an alternative for would-be site-built homebuyers daunted by existing or new-construction homes that cost $350,000 to $400,000 in many U.S. markets.
An MH Advantage-eligible home. Photo courtesy of Fannie Mae.
What Homes Are Eligible for the Programs?
The loans from each program apply to manufactured homes that become eligible given certain aesthetic, energy-efficient and installation requirements. Eligible homes, simply stated, have many of the key characteristics of site-built homes. This achieves two goals: It allows the eligible homes to fit easily into many, if not most, existing residential settings, beside their site-built counterparts. It also allows appraisers to use site-built homes as comparable sales, as needed, in determinations of value that lead to improved finance terms.
For those uninitiated with CHOICEHome and MH Advantage, these changes may mean little or nothing. However, those who work in housing and housing initiatives understand that opening up conventional financing to factory-built homes is a major victory in closing the gap on getting affordable options in places where middle-market buyers want to live.
Each program requires the buyer to finance the home, as well as the land where the home sits.
This means homes placed in a land-lease community do not qualify for the new financing terms. However, the same entities, Freddie and Fannie, are continuing to explore chattel financing, which does apply to homes as personal property that can be placed on leased land.
Are the Two Comparable in Flexible, Affordable Terms?
Both the Freddie Mac and Fannie Mae programs provide flexible and affordable features to their lending programs. Each offers high loan-to-value ratios, up to 97%, and the manufactured home loan-level pricing adjustment doesn’t apply.
Appraisers can use the most appropriate comparable sale value available, including with site-built homes as necessary.
Who is Lending Using the New Freddie, Fannie Mechanisms?
Any Freddie Mac-approved lender is eligible to participate in the HOMEChoice program, as of May 1. Fannie Mae continues to build on its participating lenders’ list.
The favorable reception to manufactured homes and other housing solutions on exhibit during the inaugural Innovative Housing Showcase on the National Mall in Washington, D.C., means the showcase probably will become an annual event.
“I think we probably will be looking to do it again next year,” HUD Secretary Ben Carson said during a June 3 one-on-one interview with MHInsider magazine. “We probably will have a lot more people who want to be exhibitors, but we’ll have to keep it under control.”
Manufactured Housing an ‘Almost Irresistible Solution’
The June 1-5 event coincided with and kicked off National Homeownership Month in Washington, D.C.
Secretary Carson, the nation’s top housing official, observed the occasion by touting the affordability, energy efficiency, technological innovation, resiliency and wealth-building capability of manufactured housing.
“You already look at the building costs, which are 30 to 40 percent less (than site-built construction), I mean this is almost an irresistible solution. You just have to get some of the regulatory barriers out of the way,” Carson said.
MHI worked with manufacturers and community owners across the country to provide the resources and access that allowed the homes to be delivered and set up on the northwest section of the National Mall.
Skyline Champion Corp., the largest publicly traded manufacturer of homes in the nation, had a pair of homes on the mall. Another large builder, Cavco Industries, worked with home retailer and community owner UMH Properties to show the third home.
As much as the Innovative Housing Showcase was a success, it was proposed in late spring and required quick work, a creative approach and diligent attention from MHI, the builders and community owners who participated.
“I was thrilled that there were so many people who were interested in this, particularly given the limited scope of advertising that was done,” Carson said.
“But that’s one of the reasons we wanted to be right here on the National Mall,” he said. “It’s its own kind of natural advertising. People are going to be walking through here all the time. Also, putting it right in view of the Capitol. Because we want the legislators to understand… we’re talking about advanced technology that really makes affordable housing a possibility. And we need to start thinking about things in a different way to solve some significant problems.”
In 2018, HUD announced a top-down review of manufactured housing rules. The Manufactured Housing Institute, the national association for all forms of factory-built housing, forwarded approximately 200 recommendations to HUD’s Manufactured Housing Consensus Committee (MHCC).
Carson said MHCC sent a revised list to HUD staff, and progress is being made.
“We’ve hired a number of more people in the manufactured housing arena, just so they can deal with it,” Carson said. “The way it’s been in recent years, we’ve had just enough people to tread water. And we need to advance the ball. We’ve made that a priority.”
HUD already has notified home installers, community owners and homeowners that it will not enforce previously enacted frost-free foundation rules, and in May rescinded the “Carport letters” that had required secondary approval and inspection for carport-ready homes, a popular feature among homebuyers.
“There’s a lot more that needs to be done,” Carson said. “Basically, we have a regulatory office (specifically for manufactured housing) now, and they’re going through all of the different segments of HUD and looking at the list that has been provided for manufactured housing. “There’s about 18 things, and we’re just ticking them off one by one,” he said. “So, it’s really only been within the last six months that we’ve really had the personnel that can get things done.”
A New Direction for Housing Programs?
HUD Sec. Ben Carson arrives to the National Mall in Washington, D.C., on June 1 to make opening remarks for the Innovative Housing Showcase.
When asked about his objectives for HUD within the next couple of years, Secretary Carson said he envisions enormous change.
“What I want to see is our agency, HUD, turn into an agency that really focuses on how to get people out of dependency,” he said. “In the past, we’ve been more interested in how many people we shelter, how many we have in this program or that program. It really should be just the opposite… how many people get out of this program. How many people can you get to a point of self-sufficiency.”
One of the prime benefits of manufactured homes is that they represent attainable housing. A primary contributor to that attainability is the fact that manufactured housing is the largest form of non-subsidized affordable homeownership.
Carson cited research showing that the average net worth of a renter is $5,000, whereas the average net worth of a homeowner is $200,000.
“So that’s a 40-fold difference,” Carson said. “And it’s a major driver of self-sufficiency.
“We also need people to start recognizing that… and I’m talking principally about millennials, you don’t have to start out with a 4,000-square-foot, site-built home,” he said. “Now, in order to start building your equity, you can start out with something much smaller. But it doesn’t need to be small and horrible. It can be small and nice.”
New homebuyers should be encouraged by a 2018 pilot report within the quarterly Housing Price Index, issued by the Federal Housing Finance Agency, that indicates manufactured homes appreciate in value similarly to site-built homes, Carson said.
“So as soon as you buy that house, you can start accumulating some wealth,” he said.
The Promise of Manufactured Housing
More than 5,000 people, many who had never stepped foot in a manufactured home, or perhaps had misconceptions about homes built in a factory, toured the new manufactured homes on the National Mall during the event.
Steve Quick of Cavco Industries spent the first two days of the showcase in the home from UMH Properties. One word, Quick said, continued to ring out among the many exclamations of amazement he heard. That word was, “WOW”.
“It’s been very busy, and the response we’ve been getting has been exceptional,” Quick said. “This is a tremendous stage for us to be able to show what we can do.”
Secretary Carson agreed.
“I think anybody walking into some of these manufactured houses… first of all, they wouldn’t believe it was manufactured housing. They say, ‘Wow, this is beautiful.’
“That’s one of the real purposes, is to sort of burst misconceptions about what manufactured housing is and what it can be,” he said. “And, of course, there are multitudinous models available to people. There are smaller models and there are bigger models. And you can match the façade to almost any neighborhood.”
MHVillage Releases MHInsider Magazine ‘State of the Industry’ Edition for July/August
The inaugural issue of the MHInsider magazine “State of the Industry” edition has been mailed to homes and offices and is available in digital magazine format.
The MHInsider™ is the leading source for news and information in the manufactured housing industry.
The July/August magazine edition takes a special deep dive into the news, events and industry trends throughout manufactured housing. The latest magazine includes…
Q&As with manufactured housing industry leadership
A sit-down interview with HUD Sec. Ben Carson
The differences between CHOICEHome℠ and MH Advantage®
Advice from industry experts
What’s trending in fee-based management
A run-down on rent control
New industry infographics and much more
The MHInsider Magazine “State of the Industry” edition caters to professionals in manufacturing, sales, finance, community ownership/management, insurance and investment.
‘State of the Industry’ is 100 Pages of Manufactured Housing News
MHInsider Magazine’s “State of the Industry” edition is MHVillage’s largest edition to date. It contains industry coverage from California to Washington D.C., brought to manufactured housing professionals via a dozen writers and editors.
Publisher Darren Krolewski, co-president of MHVillage/Datacomp, points to industry progress made evident through enhanced marketing efforts, increased engagement with federal housing officials and new lending programs that increase options for middle-market buyers.
“Needless to say, these are only a few things to be excited about as an industry,” Krolewski states. “In this, our first State of the Industry edition of The MHInsider, we focus on the progress of manufactured housing as some of the leaders in our industry share their thoughts on what we’ve accomplished and what to expect for the remainder of 2019 and beyond.”
The Federal Housing Finance Agency released a 128-page report on the progress that Fannie Mae and Freddie Mac have made in addressing affordable housing concerns. Each of the entities exceeded goals for the purchase and securitization of land-home loans, the report states.
Freddie Mac and Fannie Mae have been in conservatorship since 2008, far longer than anticipated at the time. Each of the entities is planning to exit government oversight, which also is a stated goal of both the FHFA and the White House.
The share of 2018 loans purchased by the Enterprises for low- to moderate-income borrowers in the manufactured housing market was higher than in previous years.
In addition to increasing the number of land-home loans, Fannie and Freddie each independently engaged with industry stakeholders to inform the development of pilot criteria and standards for chattel financing programs that will increase support of loans to home-only borrowers.
The organizations used three-year historical averages for loan purchases to inform the 2018 goals. Below is a comparison of Enterprise baselines, goals and actual loan purchases.
FHFA Director Mark Calabria speaks during the Innovative Housing Showcase in Washington, D.C., in June.
Fannie Mae – Land-Home Loans
Three-year average baseline: 8,072
Year 1 Goal: 8,750 loans
Year 1 Purchases: 12,604
Freddie Mac – Land-Home Loans
Three-year average baseline: 2,985
Year 1 Goal: 3,075 loans
Year 1 Purchases: 3,601
The numbers show that Fannie Mae finished 2018 44% ahead of its goal, and Freddie Mac completed the year 17% above its goal.
“As both Enterprises entered 2018, they had insufficient capital reserves to absorb losses due to the deficit at the end of 2017,” the reports states. “However, during 2018, the Enterprises generated sufficient income to allow each Enterprise to re-establish the agreed-upon $3 billion Capital Reserve Amount.”
FHFA Director Comments on Secondary Loan Markets
FHFA Director Mark Calabria commented on his then-pending recommendations to Congress during the Innovative Housing Showcase on the National Mall in Washington, D.C. in June.
“One of the things I will be asking Congress to do is to authorize me to issue additional charters so that if we can have more than just Fannie and Freddie, we can have other competitors come to the marketplace that’ll push Fannie and Freddie to be leaner and meaner and more aggressive and more innovative, but also to bring new thinking,” Calabria said.
“How do we make sure it’s not just Fannie and Freddie, but how do we get banks more involved? How do we get insurance companies more involved? How do we get other types of lenders more involved? It really has to be a variety of different processes that bring this, so that at the end of the day lenders who are successful are successful because they have great management, they have great execution, and they have great innovation,” he said. “Not because they’ve got rules and regulations stacked in their favor.”
From The Manufactured Housing Institute
The Manufactured Housing Institute, which represents all aspects of the factory-built housing industries nationwide, issued a “Housing Alert” following the publication of the report, which has been delivered to Congress with suggestions for ending government sponsorship and generally strengthening the Enterprises.
“As Congress considers reforms to the housing finance system, MHI will continue its advocacy efforts to ensure that manufactured housing is included in discussions and deliberations,” MHI state in its alert. “In February, MHI joined in an industry letter in support of housing finance reform, with MHI successfully adding language to the letter singling out manufactured housing as an important component of any government-sponsored financing effort. MHI also offered recommendations about housing finance reform to the Senate Banking Committee for retaining a Duty to Serve or some other directive for any government-sponsored enterprises to serve manufactured housing.”
Earlier this year, Oregon’s governor signed a bill into law imposing rent control across the entire state. The law, which went into effect the day it was signed (Feb. 28), is the first statewide rent control measure in the country. But it might not be the last.
Lawmakers in several states are aggressively trying to push rent control bills through their legislatures. If they succeed, it could have serious consequences for the manufactured housing communities in their states.
Though Oregon is the only U.S. state capping rents with a single, statewide standard, it’s not the only state that imposes rent control. According to the National Multifamily Housing Council, 17 states do not preempt their municipalities from enacting local rent control policies. However, in only four of those states are municipal governments actively capping rents. Those states are California, Maryland, New Jersey, and New York. In fact, during June, the New York state government passed a rent control bill that included rent caps and eviction protections for residents of manufactured homes. The remaining states prohibit or preempt rent control.
Why Rent Control?
The push for rent control is a reaction to the nation’s affordable housing crisis, which has two core causes. First, there’s the decline in production that started during the Great Recession. Second, the prevalence of student-loan debt burdens most first-time homebuyers today, according to Frank Bowman, executive director of the Illinois Manufactured Housing Association.
Municipal governments compound the problem with exclusionary housing policies, Bowman said. In order to prop up existing property values, they often restrict new housing — including manufactured housing. Also, local governments tend to develop office parks and retail spaces without housing needed by the workers those new businesses attract.
According to Bowman, the appeal of rent control is that it sounds like a simple solution. “If you think your rent is too high, just pass a law capping it.”
But the consequences of rent control are complicated. An abundance of national studies — from both sides of the political spectrum — make clear that rent control does more harm than good.
For starters, it limits the supply of affordable housing. Residents of rent-controlled housing tend to stay where they are, keeping that housing off the market. To make up for lost profits, owners of rent-controlled housing tend to raise rents on their non-rent-controlled housing. Or they turn rent-controlled housing into condos. Would-be renters end up competing for a shrinking market. And a shrinking market tends to raise prices.
“Economically, rent control makes no sense,” Sheila Dey, executive director of Western Manufactured Housing Communities Association, said. “But the problem is political. Economic arguments don’t work with a city council that has angry residents in front of them.”
Oregon May Be A Test Case
Oregon’s new law applies to apartments, manufactured housing communities, and other income-producing properties statewide. It caps rent increases at an annual rate of 7%, plus the Consumer Price Index (CPI). Since Oregon’s CPI is 3.3% in 2019, that makes for a rent ceiling of 10.3% for the year — a “very generous” limit, considering the average annual rent increase for the state’s manufactured housing lots is around 3.5, said Chuck Carpenter, executive director of Manufactured Housing Communities of Oregon.
But Carpenter believes the generosity is deceptive. It will be easy for future state governments to lower the rent limit — and he sees no reason why they wouldn’t.
The Oregon Legislature battled over rent control for two decades. But a recently elected Democratic supermajority pushed the new bill through both chambers “like a freight train”. And that was the hard part. Now that the bill is law, lowering the cap should be easy, Carpenter said.
“We will all regret the day they passed this bill,” Carpenter said. “It’s clearly a signal that this state is very hostile to property rights and landlords.”
Apartments Lead the State Conversation
There are roughly 1,200 manufactured housing communities in Oregon, containing about 60,000 lots. However, the push for rent control was driven by drastic rent increases in urban apartments. Droves of people are moving to Oregon’s larger cities, particularly Portland, contributing to the affordable housing crisis, Carpenter said.
Rent control proponents seem to think the new law will lead to the growth of more housing in the state, but Carpenter disagrees.
“In the long run, this will have a chilling effect on investors wanting to provide rental housing,” he said.
Carpenter thinks Oregon will become a test case. He knows other states are contemplating rent control measures of their own, and are watching his state closely. Manufactured housing groups in those states have no choice but to fight back, he said.
“My advice for other states is to keep fighting, keep educating legislators,” he said. “I hope other states do not adopt these policies. It’s a huge mistake.”
Photo courtesy of UMH Properties.
Illinois Rent Control, Chicago and Elsewhere
Like the rest of the country, Illinois is in the grips of the affordable housing crisis. The most consequential effects are being felt in Chicago, where rents are skyrocketing and neighborhoods are gentrifying, forcing many long-term residents to move.
In response, Chicago residents have pushed legislators to rescind a statewide ban on rent control and establish regional boards to cap rents. That effort was defeated in the Illinois Legislature in March. Bowman said a coalition of realtor, apartment owner and property owner associations, including IMHA, made “great headway”. The coalition was able to educate state legislators about the ill effects of rent control. But Chicago’s presence looms large in the state legislature. And rent control proponents will likely try again, Bowman said.
To Bowman, the obvious solution to the state’s affordable housing crisis is a greater supply of affordable housing. The greater the supply, the greater the chance that rents come down. Manufactured homes can be a crucial part of that solution, but they struggle with an image problem. Bowman attended a city council meeting earlier this year where business leaders said their workers need houses in the $100,000 to $150,000 range.
“We’re all over that. That’s our niche,” he said. “But that city excludes factory-built housing.”
Washington State to Heat Up in 2020
Statewide rent control in Oregon is a “disaster” for the housing business, said Craig Hillis, executive director of Manufactured Housing Communities of Washington. And because Oregon is right next door, there’s a good chance rent control will rear its head in neighboring Washington state.
The state of Washington currently preempts rent control, but Hillis expects a vigorous statewide debate on the topic in 2020. In the past year alone, the Washington Legislature has considered 106 housing-related bills. The impetus of all the activity is the affordable housing crisis, Hillis said.
The top impediment to affordable housing in Washington is the Growth Management Act, a statewide zoning regulation that strictly limits development. Competition for usable land is fierce, and manufactured housing, which doesn’t generate as much income as apartments or condominiums, is at a disadvantage, Hillis said.
“The Growth Management Act is a 20-year-old provision,” Hillis said. “It needs to be updated.”
What’s Happening in New Jersey
Rent control used to be a hot topic in New Jersey, but the controversy has waned over the years. Fewer municipalities cap rents compared to a decade ago, said Jane Chady, executive director of the New Jersey Manufactured Housing Association.
Chady couldn’t explain the decline but expressed her own opinion about rent control.
“If you study rent control long enough, you learn it doesn’t work,” she said.
Chady doesn’t think what happened in Oregon could happen in New Jersey — at least not to the state’s manufactured housing industry, which is dominated by communities.
“We’re an extremely tenant-friendly state,” she said. “Our rents are low compared to apartment houses. Nobody’s looking at manufactured housing here and targeting it for rent control.”
New Jersey isn’t immune to the affordable housing crisis, of course. It’s an extremely expensive state to live in, but its municipalities are obligated by law to emphasize affordable housing in their zoning regulations. The state also is considering a workforce housing bill to address the affordable housing crisis, Chady said.
“If we can get a little bit of zoning relief through this workforce housing bill, it’ll be a better solution than rent control,” she said.
Colorado Rent Control
An attempt to repeal the statewide rent-control prohibition and allow local jurisdictions to adopt their own ordinances died in the Colorado Legislature April 30.
Tawny Peyton is the executive director of the Rocky Mountain Home Association (Colorado’s state association) and the Utah Housing Alliance.
She said the latest push for rent control started before the 2018 midterm elections. Candidates for public office heard about the need for affordable housing on the campaign trail, and decided rent control was the best solution.
Peyton said the attempt was defeated with help from the state’s realtor, apartment, lender and manufactured housing industries.
But she expects another push for rent control next year.
To combat that and other attempts, she said the industry needs to be more proactive. It needs to focus more on communication and education rather than reacting to every bill. The public and lawmakers need to know that, in the long run, rent control does more harm than good, she said. They need to learn alternative ways to solve the affordable housing crisis, like relaxing zoning rules and boosting lending in the industry.
And there’s the perennial need to improve the manufactured housing industry’s image. The effort goes on to rid people of the stereotypes they hold about mobile homes.
In the other state she serves, Utah, Peyton said a push for rent control was possible, but so far state officials are looking at other ways to solve the affordable housing crisis.
California and Its Patchwork of Mandates
Statewide rent control like Oregon’s is bad for the industry. But at least it hits everywhere and everyone the same way, said Thomas Casparian, an attorney and partner with the Cozen O’Connor law firm.
Without the imposition of uniform rent control, you get a patchwork of different policies (or none at all) in every city and county. That’s the situation in California, Casparian said.
Patchwork rent control can distort the manufactured housing market in various ways. Local caps can limit annual lot rent increases to a paltry amount, which can drive the value of the homes sitting on the lots to “ludicrous” heights. Communities in rent-controlled municipalities are selling new manufactured homes for $400,000 and more, said R.C. “Dick” Bessire, president of Bessire & Casenhiser, a property management company. Bessire said he knows of an old beachfront mobile home in Oxnard that’s selling for $700,000 — because its lot rent is so low.
The State’s Focus on Manufactured Housing Controls
According to Dey, WMHCA’s director, 110 of California’s cities and counties apply rent control to manufactured housing communities within their borders. This is compared to only seven municipalities that apply rent control to apartments. Rent control in those 110 municipalities runs the gamut from full vacancy control (capping rents even after a tenant moves out of a home) to full vacancy de-control (allowing the landlord to set rents for new tenants at market value).
California’s Costa-Hawkins Rental Housing Act limits local governments’ ability to enact rent control. But the act doesn’t apply to manufactured home communities. This makes the state’s manufactured housing industry particularly vulnerable because it can’t make a common cause with other rental industries, Casparian said.
Last November, California voters rejected a ballot initiative seeking to repeal Costa-Hawkins and expand rent control across the state. There might be more rent control legislation introduced in the near future, Dey said.
“There’s going to be a real fight,” Bessire said. “The governor is promising statewide rent control.”
California’s manufactured housing community owners might prefer statewide rent control to the current patchwork approach, however — if the statewide law ties rent increases to CPI and includes vacancy decontrol, Bessire said.
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