White House’s Manufactured Housing Plan Stirs Optimism
Lowering regulatory and financing barriers would help ease the affordable housing crisis, advocates say.
Advocates for manufactured housing hope that recent actions taken by the Biden administration to address the affordable housing crisis will be a boost to their industry.
The administration recently said it will call on state and local governments to reduce zoning and financing barriers to manufactured housing and is encouraging the government-sponsored enterprises (GSEs) to increase financing.
The measures are part of a series of administrative steps intended to create and preserve more than 100,000 affordable housing units in coming years. The actions are separate from funding for housing policies that are part of the multitrillion-dollar infrastructure bill being negotiated in Congress.
The steps are a long time coming, remarked Lesli Gooch, CEO of the Manufactured Housing Institute (MHI) trade group. “We are thrilled that the administration is highlighting manufactured housing as part of its agenda to increase the supply of affordable housing,” she said.
Financing individual manufactured housing units has long been a sticking point for federal agency lenders. Congress passed legislation in 2008 that gave Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) a “duty to serve” manufactured home units.
But since then, Fannie and Freddie have purchased no home-only manufactured housing loans, which are typically referred to as “chattel” loans. For its part, FHA has financed relatively few. Only 33 manufactured home units were financed via the FHA in 2020, Gooch said.
Individual manufactured housing units have two types of ownership. One is a traditional arrangement in which the homeowner owns the building and the land. That represents about 20 to 30 percent of manufactured homes, and those properties get financed via traditional mortgages.
But the majority of manufactured homes—about three quarters—are owned through an arrangement in which the homeowner leases the land and pays rent to an investor. This arrangement necessitates using chattel loans, which carry higher interest rates because the land is not part of the collateral and because the private lenders that originate them often hold the credit on their books and are subject to long-term interest rate risk.
What’s more, the structure makes chattel loans more difficult for a lender to underwrite. One concern is that the rent on the land can increase, which can create a burden on homeowners and increase the risk of default. Homeowners can be evicted if they don’t pay the ground lease, even if they are current on the mortgage on the structure.
According to the National Low Income Housing Coalition, the median income for manufactured housing residents is less than half that of traditional homeowners; as a result, manufactured housing residents are more vulnerable to rent increases. However, Scott Olson of Olson Advocacy Group, an advisory and lobbying firm, said that historical loan performance data supports the premise that the GSEs and FHA can safely and profitably purchase or insure chattel loans.
Fannie and Freddie separately finance investors who purchase the parks and lease the land to occupants of the units. According to a recent report by Lument, a specialty lending firm, some $6.4 billion of loans on manufactured housing communities were securitized in 2020, up from $2.8 billion in 2019. Those loans encompass both GSE and regular CMBS transactions.
Manufactured housing is seen as part of the solution to affordability because units are inexpensive relative to single-family homes and residents have lower incomes than occupants of other types of housing. There are 8.5 million manufactured homes in the U.S., representing 6.1 percent of housing stock nationwide, according to the American Community Survey. More than 95,000 new manufactured homes were delivered in 2020, reports the MHI. The organization reports that the average new manufactured home sold for $78,500 in 2019, slightly more than one-third the cost of a free-standing home.
Manufactured housing advocates hope the steps announced by the White House will push the Federal Housing Finance Agency, which oversees the GSEs, to treat chattel loans on a par with traditional home mortgages. That could help increase the affordable housing supply.
Advocates also hope that the pressure to relax zoning regulations will help increase the number of communities. Very few have been created over the last two decades, in part because of municipal opposition.
The administrative steps will be slow to take effect, and enforcement of matters such as municipal zoning is fraught with complexity and prone to long delays. But the federal apparatus is now inclined to look favorably on manufactured housing, a major change and a step in the right direction for the segment. “There are a lot of things in this proposal to be excited about,” Gooch said.