NEW Manufactured Home Land Lease Community Development. . . If not now, when?

by Eddie Hicks

Now, in early 2012 we are seeing a fairly rapid filling of area apartments to capacity, with the result that many landlords are increasing rents, and eliminating many of the incentives they were offering just a year or two ago. This "surge" is due in part to a pent up demand for housing by those displaced from their defaulted mortgages, and an inability to repair their credit to former levels to qualify for the purchase of another home so soon after the foreclosure, and the general increase in employment due to an apparent increase in consumer spending, creating hopefully an end to the long, long recession.

Can the projected "overflow" from those seeking apartments be turned into new residents of our manufactured home land lease communities? I think so, if we take a hard look at what we offer these prospective residents, and what it will take to get their serious interest. But that's another issue we need to effectively deal with.

Non-recourse acquisition and development financing at low interest rates and 40 year terms is available for new community development or rehabilitation of existing communities by private lenders using the FHA 207m loan guarantee program. Several loans are now being considered by HUD staff members in several areas of the country, after being virtually dormant for the past 12 years. In some cases, where land costs provide for it, relatively low cost municipal water and sewer are available, although not absolutely required. For those properties where the homesites are zoned for manufactured housing, the similar 40 year FHA 221d4 new apartment financing program which allows for site built or HUD Code homes as the dwelling unit may be available.

We are already seeing interest by investors and developers in new manufactured home land lease communities in spot areas of the country, especially those where employment is strong, and other housing options are scarce and/or expensive.

What elements are needed to create a successful m/h community? The first and most important factor which is well known is: location. Obviously the community should be well located in terms of proximity to community services, shopping, medical services, schools (except for seniors communities), parks and recreation, low crime areas, etc., are among the other obvious factors. What may be less obvious, are other very important location factors including: being in an area where m/h communities have a fair to good reputation (social acceptability), locating in a market where there is a shortage of entry level affordable housing, where apartment rents are high, and where there is diverse and steady employment. Also, where incomes are sufficient to support the purchase of a home and site payment combination.

Secondarily, and almost as important as location, is the availability of viable home financing options and terms for buyers. With the exception of limited FHA Title I home financing options with GNMA as a secondary market for notes, the m/h industry has been virtually "locked out" of secondary financing markets such as FNMA and FreddieMac for many years, resulting in a shortage of investors at rates and terms which allow for competition with site built housing. As a result, the shorter term loans, and higher interest rates necessary to lower home payments for an offset have created a de facto "ceiling" on home prices, and therefore on the home quality and features.

Investors and lenders for chattel mortgage lenders point to the old saw that "manufactured homes depreciate" and therefore can't be relied on as sufficient collateral necessary to support longer term loans at lower interest rates. While not necessarily true (look at seniors communities for example), and what effect the home refinance options have on pre-occupied homes for another example, when a homebuyer goes to sell their home and the only financing available is short term, at almost usurious interest rates. So, pre-occupied home prices are often lowered to compensate, giving the impression that there has been "depreciation."

Over the years, there have been several attempts by FNMA to find a way to include m/h in their "bundled" packages of loans to investors, with little success. Now that they are under fire for reportedly irrational loan underwriting (as the result of Government suggestions), with a resulting devastating effect on investors returns, and seriously hurting home values all over the country, there may be no interest in resuming the challenge for reasonable terms for m/h financing on a par with site built homes.

Unlike factories building automobiles which can be absorbed on our nations roadways in virtually unlimited numbers, manufactured housing needs homesites on which to site them. Without an adequate number of new homesites, production is limited, as is evidenced by the fall from over 300,000 homes a year in the turn of the century to only 50,000 in 2011. Investors are buying existing communities at prices which are unheard of, but where is the stimulus to build new communities?

With a properly selected location, and viable home financing options for home buyers, new community development should be on the minds of everyone in the m/h industry, including but not limited to: manufacturers, suppliers, installers, community managers, investors. And most of all, happy, contented new community residents, living in affordable, safe, comfortable, quality housing.

That's all I have to say on this today. ##

(Editor's Note: Eddie Hicks is a member of MHSpeakerTrainer.org)