Real Estate's Red-Headed Stepchild - Manufactured Housing

 

Discussions on policy for housing that are pro-supply are focused on high-land cost, high-opportunity metropolitan regions. Discussion of the "housing problem" focuses on costly coastal cities like Boston or San Francisco. In these cities, the combination of robust market conditions for labor and strict restrictions on homebuilding push median home costs to be more than twice the construction costs. Growth control laws, as well as land prices, are the most urgent issues for the policymakers in these regions to tackle. Construction costs do not are a factor when construction is not feasible.

The coastal housing issue is indeed growing. However, the majority of Americans do not live in these areas. For instance, more Americans reside in rural regions than anywhere else in Canada and California. Even in urban areas, most U.S. metros still have median home prices that are within 125% of the cost for construction, which means that the construction costs, not land cost or growth control, are "in the driving seat" in the home price.

For most Americans, construction costs and efficiency are key to affordable housing -this is why these issues are crucial to be addressed in conjunction with the well-known problem of coastal homes. However, between 1987 and 2016, single-family residential construction productivity grew just 12 percent. In contrast, construction efficiency for multifamily homes nearly tripled over the same period. However, the construction of sites in general and single-family home construction particularly remains insensitive to the effects of automation.

Welcome to manufactured housing, the frequently neglected and often criticized housing type that quietly provides 8.4 million homes for sale nationwide. These days, manufactured homes aren't like your grandma's caravan or a mobile home from the 1970s. Modern manufactured homes meet high specifications for strength, structural integrity, the durability of materials and security.

Manufactured houses are just houses built in an assembly line within the factory, similar to an airplane or a car. The controlled environment provides higher efficiency compared to the construction sites where workers have to work regardless of weather conditions and, in some cases, difficult places. Since manufactured homes are constructed inside, the workers can perform their work more effectively and safely. Another advantage of indoor construction is that the houses are exposed to elements once completed. Most importantly, manufactured housing can provide manufacturing floor automation and constant productivity growth we've come to expect from other manufactured goods to lower costs and enhance quality over time.

How can manufactured homes be regulated?

Like any other housing structure, the regulation of manufactured homes is divided between two distinct codes. One is the construction code, which governs the building's safety, health, and energy efficiency. The second is the zoning law that regulates yard size, floor area and the coverage of a lot, setbacks, and other nebulous aspects of growth-controlling land usage regulation.

Since manufactured homes are permitted to travel across state lines, Their building codes are specifically controlled at the Federal level through the Department of Housing and Urban Development under the infamous "HUD code"-instead of being governed by the states. This code creates the national standard for manufactured homes in terms of security, energy efficiency, weatherproofing, and other aspects of design.

There are a variety of issues concerning Zoning regulations. In this case, manufactured homes are subject to the state's regulation, usually delegated to municipal authorities. Therefore, the same zoning laws prohibiting multifamily homes also restrict or prohibit HUD-coded homes.

What is the reason manufactured homes are exempt from the community?

Standardization across the nation makes scale economies and automation feasible; however, they can also make manufactured homes easier to exclude from discriminatory communities by tightly regulating their distinctive design elements within the local zone code. These components include, but are open to, the steel frame that remains in the house after it is installed, until recent developments in design and construction, an aesthetically lower-pitched roof. These "telltales" permit local governments to limit manufactured homes and those living in them to unfavored areas, like a few specifically designated mobile homes, or to prohibit them completely.

Why are communities excluding manufactured homes? This is the same discrimination based on race that prompts local authorities to ban apartment buildings and residents there. Manufactured housing bans cause the most damage in the exurban and rural regions, where they are absent public scrutiny, especially compared to the recent criticism of city-wide bans on apartments.

Titling and financing are a second problem for the adoption of manufactured homes. Some states, including New York, treat manufactured homes as boats or cars rather than real estate in terms of ownership. That means they are registered by the State Department of Motor Vehicles or the secretary of the state's department. The "chattel property" approach is in contrast to "real estate property", the ownership of traditional land and structures legally titled by the county register of deeds or an equivalent office. Although this distinction in law may appear trivial, it drastically reduces homeowners' financing options.

The typical site-built home has the highest amount of (and Federally-backed) financing options, loans extending to 30 years, and low down costs. The loans for manufactured homes could be more generous. A typical mortgage for a manufactured house classified as a vehicle will be 0.5 to 5 percent more than a traditional mortgage. In states that permit manufactured properties to be considered real estate or real estate, homes manufactured that are permanently fixed to the ground can be qualified for financing that works similarly to a traditional mortgage. Federal Housing Administration (FHA) Title I loans are a good example. They have periods of as long as 25 years and are available for up to $92,000.

What can policymakers do to level their playing fields?

Congress:

Congress may preempt local regulations that restrict the construction of manufactured homes, as in the case of building codes. States like New Jersey's prohibition on constructing manufactured homes within the designated home park for mobile dwellings can be disregarded as unreasonable limitations on commerce between states. Congress may also eliminate the HUD requirement for code-compliant homes to remain in a mobile chassis when permanently attached to the ground. 

This would allow the frames to be reused, reducing costs for each home manufactured. Additionally, Congress could go further and leverage innovative proposals such as those in the HOUSES Act that was proposed by Sen. Mike Lee (R-UT) to make it mandatory for local and state government officials to permit manufactured homes to be built on land that has been transferred into their jurisdictions by federal authorities.

HUD

HUD can expand its cooperation with the manufactured housing industry and other stakeholder groups in the manufacturing Housing Consensus Committee (MHCC). Recent rule modifications created using MHCC input have streamlined the HUD code to be more tolerant of innovative designs and developments to meet the needs of a wider range of environments beyond mobile home parks and rural homes. There's more to be done.

HUD may also evaluate the discriminatory zoning practices of manufactured housing to determine compliance requirements under HUD's Affirmatively Promoting Fair Housing rule. (HUD can also deny federal assistance to those who fail to positively promote fair housing for the most vulnerable classes).

State government

At the state level, authorities should permit manufactured homes registered as real property, not classified as chattel property merely due to the construction method. Resolving the titling issue will allow homeowners to access financing, as manufactured homes that are mortgageable real estate can be eligible for the same financing accessible to homes built on-site.

Fair housing laws at the state level that are layered upon the HUD AFFH rule, if they exist, must also look at the discriminatory treatment of manufactured housing when they are incorporated into their fairness evaluation guidelines. States should also consider changing local control over manufactured housing bans, such as preempting local authorities to prohibit these housing types from residentially zoned areas. Preemption at the state level has been useful in legalizing the other traditional "starter home" housing, like accessory housing units.

FHA, FHFA, and the GSEs

The federal government runs directly the Federal Housing Administration, a department of HUD responsible for residential mortgage insurance. Its independent Federal Housing Finance Agency regulates the so-called government-sponsored entities (GSEs), which include Fannie Mae, Freddie Mac, Ginnie Mae, and the Federal Home Loan Banks. The alphabet collection of Cabinet agencies, independent federal regulators, and federally-sponsored companies oversee the securitization process of the mortgage secondary market. Together, they shape guidelines for lending policies to FHA and GSE conforming loans for manufactured and site-built homes. FHA and GSE loan conditions should be the same for all real home properties, regardless of the construction method. As long as state-level titling reforms do not allow manufactured homes to have mortgage choices available to real homes, FHFA and the GSEs should continue to investigate the possibility of pilots that allow chattel loans for manufactured housing to be secured as well as insured and sold in the same manner as conventional mortgages would be.

A new era for the sector/growth opportunities

Many people in the manufactured housing industry understand that the potential for growth in new markets is in breaking away from the traditional mobile home park mold, but not denying or discrediting the traditional approach. Manufactured housing can be used as an alternative to rejuvenating the housing stock in older cities where home prices are lower than the cost of replacement for built homes on-site or in areas where housing is required faster than construction methods built on-site attain. Although it is widely and readily permitted in rural areas with low incomes in and in the South and West, manufactured housing needs to be addressed and regulated throughout the countryside of the Northeast and in Rust Belt cities with similarly lower incomes and prices for land.

Industry experts say that new subdivisions in which homeowners own the land and the home could be another opportunity for growth. In addition to leveraging the scale economies of the park model built on rental land, these developments will be planned and constructed as real estate in new subdivisions indistinguishable from conventional site-built developments. This would enable manufacturers to construct homes on a large scale with an ownership model more appealing to middle-class families seeking an experience they usually prefer only from on-site subdivisions.

The HUD's latest proposal for a rule allows multi-unit manufactured houses that can satisfy housing demands urgently, for instance, following an event or need for housing for workers, which was the case at the time of the Bakken oil boom in North Dakota. The new rule allows for the construction of three-family homes, which could also lead to opportunities in cities with more expensive land costs; at the very least, if state and local regulations for land use allow it, the construction of more units that could be built on the same parcel of land.

Conclusion

Manufactured housing has been around for decades and is a factor, particularly in rural and low-income regions with low land prices. In states that have the highest degree of liberalization in regulation for manufactured homes, particularly in regions like the South and West, manufactured homes comprise between 20 and sixty percent of the new single-family homes built.

By contrast, Metropolitan areas with higher prices for land have thought of manufactured housing as an extra-cost product designed for areas such as rural Mississippi in which land is free. It's true that a single-family $90,000 HUD code house located on a 1 million square foot parcel situated in San Francisco will still cost $1,090,000. But most metro area land costs in America are less expensive than those in San Francisco. The new HUD approval for manufactured homes with three families allows homeowners (where the local law permits) to spread costs for land over a larger number of units.

The HUD's actions are necessary, but more is needed for the initiative's success. Cities and states must also eliminate their respective bans of three-family HUD code homes. It's the right time to review how we view manufactured homes and remove state and local restrictions in rural areas and our cities.