By William Wilcox
Mobile home parks are a distinctive form of unsubsidized affordable housing that serve communities across the United States. These communities are also vulnerable to exploitation by investors. Federal and state legislators and regulators should expand the conversion of mobile home parks to limited equity cooperatives in order to ensure their long-term affordability and stability.
There are 8,509,712 mobile homes, also referred to as manufactured housing, in the United States, making up 6.3 percent of the U.S. housing stock. Of the 45,640 mobile home communities in the U.S., 65 percent have less than 50 units, 19 percent have 51-100 units, and 15 percent have more than 100 units. These communities are spread across the country and more than half are located in rural areas. Currently, mobile home parks are home to one in 10 households living below the poverty line, making them the largest source of unsubsidized affordable housing in the United States. Because mobile homes are significantly cheaper than traditional site-built housing (on average $292,600 less for a new manufactured home), they continue to be a valuable source of affordable housing, particularly in rural areas where dense multi-family housing is not a typical part of the housing stock.
Mobile Home Parks at Risk
Mobile homes are not actually mobile, which makes mobile home residents especially vulnerable to exploitation by new investor-owners who seek to reap profits from astronomical rent increases. It costs at least $5,000 to move a mobile home. Most people who live in manufactured housing do not own the land their mobile home sits on and in turn must pay “lot rent” to the owner of their mobile home park. Not owning the land their home sits on effectively traps mobile home owners and forces them to pay endlessly rising rents at the discretion of the park owner since they cannot easily move the home they own. In recent years large Wall Street investors, including hedge funds and private equity firms, have increasingly looked to mobile home parks as lucrative investments, rapidly increasing rents to turn a profit. Small individual investors have begun attending weekend investing seminars about purchasing mobile home parks, where they refer to mobile home parks as being like “a Waffle House where the customers are chained to their booths.”
This increasingly speculative market for mobile home parks threatens to decimate a vital and unique source of previously unsubsidized affordable housing. Without additional protections, mobile-home residents are trapped by the high cost of chattel mortgages (higher-cost mortgages generally reserved for things like boats and televisions, personal property, as opposed to real property like a house or land), the landlord’s ability to increase lot rent, and the prohibitive costs of moving their home.
Mobile Home Parks for Residents, Not Investors
In order to maintain this supply of affordable housing, it is imperative that regulatory and programmatic steps are taken at both the state and federal level. The solution is to empower mobile home communities to purchase the park themselves by joining together to form a non-profit (limited equity cooperative).
One key way to support these efforts is to improve state right of first refusal laws that allow mobile home communities the first option to purchase their community when it is put up for sale. Right of first refusal obligates the existing owner to sell to residents if they are able to match the terms of the third-party offer being made to purchase the park. By owning their own park,residents can oversee management and are permanently protected from displacement and eviction. Residents are also able to access key benefits of homeownership, such as the mortgage interest deduction and annual appreciation in value of their home.
Even if these right of first refusal laws are strengthened, outside investors can more quickly make an offer and secure financing, particularly because Fannie Mae has provided financing to large investors for the purchase of mobile home parks. In order to put resident organizations, which face collective action challenges and have less access to capital, on equal footing with investors, states should pass laws mandating that residents are notified of the possible sale of their park and their right of first refusal to purchase the park themselves.
Currently eight states (Connecticut, Delaware, Florida, Massachusetts, Minnesota, New Jersey, New York and Rhode Island) have laws requiring right of first refusal to residents for the sale of mobile home parks in certain cases. The length of time residents have to match the offer varies from 30 to 120 days. The quality of these laws varies state to state; some are more expansive while others only narrowly apply to certain situations. For example, in Connecticut, New Jersey, New York and Minnesota, the right of first refusal for residents only applies if the new owner plans on developing the park to be used for a purpose other than a mobile home community. In other states, such as Florida, notification is only required if the mobile home community already has a resident association. Similarly, in Massachusetts only a resident association representing 50 percent or more of the park can even get a copy of the third-party offer being made to purchase the park.
Some states do have stronger protections. Both Florida and Delaware require that residents be given the right of first refusal in any case of sale and various states including Connecticut require that all residents are notified of the impending sale if there is no existing resident association. Some states also offer tax incentives to owners who sell their parks to residents, which can further assist residents in purchasing their park.
However, in this market upswing for mobile home parks, matching the price and terms of the third party purchaser could prove too expensive for residents to purchase through a blanket mortgage, particularly without government financial support. To address this risk, the right of first refusal requirements for Low Income Housing Tax Credit (LIHTC) projects provides a useful model. Under these requirements, if a LIHTC project is offered for sale, it must also be offered to the tenants (acting as a cooperative) or a qualified non-profit at the cost of the lesser of: the price of the outstanding debt on the building plus any applicable taxes at sale; the appraised fair market value; or the amount offered by the third party seeking to purchase it. These kinds of sale cost restrictions can help to ensure that the price of purchase at right of first refusal is manageable for residents to pay through debt financing.
Policy Recommendations
Mobile home parks represent a unique and effective form of affordable housing, particularly for rural areas, and preservation efforts to maintain their affordability will be an important policy issue across the United States as housing costs continue to rise. Incentivizing the conversion of mobile home parks to resident-owned limited equity cooperatives faces major challenges, including: convincing owners to sell parks to residents, passing necessary legislation at the state level (particularly in rural states where there is a greater concentration of mobile home communities), and organizing residents sufficiently to purchase their parks. To expand resident ownership of mobile home parks, states should pass laws that help incentivize and ease the process of the conversion to resident ownership. For this policy to be effective it must be triggered whenever there is a third-party sale (not just when use is being changed), provide adequate time for residents to make an offer, and provide notice to all residents regardless of whether or not there is an existing resident association. Ideally, the right of first refusal would also include purchase standards similar to LIHTC to help reign in possible costs to residents.
William Wilcox is a Master of Public Policy candidate at the Goldman School of Public Policy and an Editor of the Berkeley Public Policy Journal.
The views expressed in this article do not necessarily represent those of the Berkeley Public Policy Journal, the Goldman School of Public Policy, or UC Berkeley.