Tag: manufactured homes

• The fall of manufactured housing

  

  In 1973, 580,000 mobile homes (or manufactured home as they are now called) shipped in the United States. This represented about 50% of the number of single-family housing starts that year, and about 22% of total housing starts. So they represented a significant chunk of the overall housing supply.

  But following the collapse of the US housing market in 1974, an interesting thing happened. Manufactured homes never managed to reclaim their position in the stack. See above chart. Brian Potter, author of Construction Physics, puts forward a number of possible explanations for this, over here.

  Some have speculated that it was the result of new code changes that ended up increasing costs. Some have speculated that it was because of a new requirement to include a steel chassis on the bottom of every home, which also increased costs, but more importantly stigmatized manufactured homes. It made them seem transient, whereas previously they were installed on permanent foundations.

  There are also some theories that manufactured home production was harder hit during the economic downturn given that they had more fixed plant costs (compared to site-built homes with their variable labor costs).

  But Brian’s current working theory is that it comes down to capital flows. Manufactured homes tend to cater to lower-income buyers and so supply, as the argument goes, has largely depended on “lax lending” practices being made available to them.

  I’m not so sure that this is the only reason though. For one thing, multi-family housing starts have followed a somewhat similar trajectory to manufactured homes. We’ve certainly seen an increase in supply over the last decade, but we’ve never gotten back to that early 1970’s peak.

  And so I wonder: How much of this is actually just the result of the single-family home hegemony? This is arguably what the market has historically wanted (look at the split pre-1973 in the above chart), and so perhaps we simply refocused our attention there and worked to make this housing type as accessible as possible to the masses.

  Chart via Brian Potter

  2022.07.23

• How ethical is the trailer park business?

  When I was in grad school at Penn, real estate mogul Sam Zell used to come in and talk to students about once or twice every year. He permanently endowed the Samuel Zell and Robert Lurie Real Estate Center at the school and so there was a strong connection.

  Because of Zell, a few of us developed a theory that the entertainment value of a talk was more or less correlated with net worth. In other words, the richer the speaker, the funnier the talk. Zell, for example, would often come in jeans, a baseball hat and a hawaiian-like shirt, and drop f-bombs all throughout his talks. You can do that sort of thing when you’re worth a few billion and you’re signing the checks.

  But beyond just being entertaining, Zell shared a lot of insights about the businesses he was in, getting into (Chicago Tribune) and getting out of (Equity Office Properties). Some of those businesses turned out to be a disaster (Chicago Tribune), but others (Equity Office Properties), made him look like an absolute genius.

  One business that he always liked to mention though, was the manufactured home business–also known as the trailer park business. And that’s because, as chairman of Equity LifeStyle Properties, Zell is the largest mobile-home landlord in the US. They control 140,000 sites across 32 states and in British Columbia, Canada.

  The reason Zell likes this business is, quite simply, because it makes a lot of money and it’s growing. There are an estimated 12 million Americans living in trailer parks. That’s probably why Warren Buffet also bought Clayton Homes–another manufactured home builder–for $1.7 billion in 2003.

  But it’s not just the big guys who like this business, it’s entrepreneurs at all levels. In fact, I was just reading this article from New York Times Magazine about a couple of entrepreneurs who actually setup a school called Mobile Home University. The objective is to train aspiring entrepreneurs on how to profit from poor people in America:

  “The bottom line is Americans as a group are getting poorer,” he told his students — and while that’s bad news for those living on the economic fringes, it also means opportunities for those willing to take advantage of the trend.

  Just how poor? Here are typical rents:

  The typical tenant who rents from Rolfe and Reynolds pays $250 or $300 a month in lot rent and another $200 or $300 if also renting a trailer. “The trailer park is people’s last choice,” Rolfe says, “and we recognize that.”

  Now, trailer parks are not the sort of thing that architects and planners typically like to talk about it. They’re not sexy. They’re not urban. But as the article says, these guys are providing the “dollar store” of housing and making a lot of money doing it (annual returns of approximately 25%).

  But is targeting people with rock bottom credit ratings and no other housing options an ethical business model? (The article also talks about 10% a year rent increases.) I’ve personally always found these ethical questions to be difficult to take a stance on and so, for this one, I’m going to put it out to the ATC community. What do you think?

  2014.03.15