Why Current Megatrends are Favoring Community Owners

I am constantly amazed by my good luck in owning manufactured home communities during a period in American history where every single megatrend pushes me forward. For those who were not around in the 1980s, the term “Megatrend” means “a trend of unusually large size and staying power” – basically a regular trend on steroids. And there are more than a few in play right now.

The Demand for Affordable Housing in Manufactured Home Communities

Ask any community owner, and you’ll find that their phone rings off the hook whenever they run an ad offering a manufactured home for sale or rent. We have some properties that garner over 100 calls per week from such ads. So how is that possible? I believe that this megatrend is the result of some changes in the apartment industry. First of all, apartments are not that cheap anymore. The average two-bedroom apartment rent in the U.S. in 2010 was $1,030 per month. Compare this to a two-bedroom manufactured home at $495 per month including lot rent. The other reason is that the existing apartment stock at the lowest price points is absolutely awful. Poor condition, terrible location – something that no self-respecting human would live in.

The Never Ending U.S. Recession

This megatrend is a painful one, but is accelerating daily – the decline of the U.S. economy. As America produces more low-paying jobs (and eliminates more high paying jobs) the general population becomes less affluent. And with 20% of the U.S. population earning only $20,000 per year or less, the numbers reflect a housing budget that only manufactured housing can satisfy. If you assume that, at $20,000 per year, housing should not exceed 30% of income, these people can only afford $500 per month. Which puts them right back into the sweet spot of manufactured home communities.

Constant New Household Formation

Warren Buffet gave an interview recently on the ever-increasing amount of new household formation in the U.S., and the inability of this group to afford current housing options. So where can these new households afford to live? Manufactured home communities. And these new nuclear family units are being formed by the thousands, every day.

The Aging of the U.S. Population

With the “baby boomers” the largest segment of the population – and turning 60 --  we are entering an era in which more people than ever before are trying to make do on very low fixed incomes on retirement. Where can you live on $1,000 per month of social security benefits? Again, you’re right back in the manufactured home community sweet spot.

The Collapse of the U.S. Mortgage Market and Housing Values

Now that you can no longer obtain no-documentation, zero-down mortgages for new and used stick-built homes, the game is over for those who used the system to buy more home than they could afford. There was a time in which you could buy a $300,000 brick house for less down and less scrutiny than a $30,000 manufactured home. Well, those days are over. The swarm of people that avoided manufactured home living in favor of these easy credit custom homes can no longer do so. And the people who obtained such loans are now defaulting and ending up back in manufactured home communities again.

Rediculously Low Interest Rates

This megatrend works in two different directions. First, it makes mortgages on manufactured home communities less expensive. Indeed, interest rates are at historic lows -- and then get lower again. The other benefit is that CDs and T-Bills are paying maybe 2% on a 10 year instrument – hardly compelling numbers on savings versus the returns generated with a typical manufactured home community. And what about the stock market? Does anyone even need to ask anymore?

New City Administrator Attitudes

This megatrend caught us totally off-guard. Fifteen years ago, I was treated like a leper at any city hall in the U.S., because they absolutely hated having manufactured home community owners. Now I get treated like a VIP. Why? Two reasons. First, the U.S. government is strong-arming cities to provide more affordable housing. If they want to keep their federal funding, they’ve got to address where less affluent citizens can live. Secondly, they are finally realizing that manufactured home communities can provide housing that is significantly cleaner and more slightly than apartments. Where’s the real crime center in most cities and towns? Apartment complexes, not manufactured home communities.

Acceptance as an Asset Class

Manufactured home communities continue to gain ground as an investment-grade real estate class. With the lowest default rate among all forms of commercial real estate, this megatrend continues to increase velocity. And it brings in new portfolio buyers, as well as lenders, constantly.

Conclusion

How did we all get so lucky as to have all these megatrends line up at the same time? Fifteen years ago, when I purchase my first manufactured home community, it was definitely not the case. But now, it seems that every new megatrend is in our favor. And I don’t see any of them ending for a long time, if ever. My final megatrend? The value of manufactured home communities. I see them continuing to rise, driven by ever-increasing net income and favorable outside forces.

 

 

Frank Rolfe is regarded as one of the leading Manufactured Housing Industry experts. Frank is involved with leading websites on Mobile Home Parks and Mobile Homes for Sale