Manufactured housing is gaining interest from the 55-and-older age group as a viable alternative to traditional senior living options, with the shortage of affordable housing cited as a key attraction. In addition, this segment of the population is expected to double in size by 2029, when it is estimated that more than half of middle-income seniors will not have the finances to afford traditional senior living options.
The shortage of affordable housing is one of the largest unresolved issues in commercial real estate and in our society today. The growing demand for affordable housing presents an opportunity for unconventional solutions and the manufactured housing industry is well-positioned to reap the benefits of the pent-up demand.
According to JLL Research, the strength of the national housing market pushed home values up some 15 percent year-over-year as days on market decline. With home equity values being a major determinant of senior housing residents’ ability to move into and afford senior housing rents, manufactured housing is gaining attention.
Due to its attractiveness, the past 12 months witnessed a flurry of institutional investment activity resulting in increased demand as investors sought to place capital in more recession-resilient sectors.
Valuations for manufactured communities reached an all-time high of nearly $47,000 per pad in the second quarter of 2021. The strongest price appreciation occurred in Southern and Midwestern markets with year-over-year increases of 44 and 52 percent, respectively.
Despite growing investor demand, however, limited investment opportunities weighted on capital deployment, with portfolio activity falling to the lowest level since the onset of the pandemic. As a result, transaction activity stabilized in the first half of 2021, with second quarter dipping slightly to $4.3 billion. Early indications for the third quarter 2021 show the highest level of transaction activity on a trailing four-quarter basis, at $4.5 billion.
Beyond the affordability component, advancements in various technologies and the utilization of recycled materials are a few of the other ways manufacturers are reducing energy consumption and waste.
With environmental, social, and governance pushing to the forefront of investment strategies, the construction of manufactured homes continues to take advantage of advancements in various technologies to reduce energy and waste associated with the production of manufactured homes. Manufacturers are also focused on implementing more efficient cooling systems and better insulation to lower utility costs and carbon footprints.
Owners also have a role to play in ESG by implementing the use of renewable energy sources within their communities. For example, installing solar panels and retrofitting community light fixtures to convert to more energy efficient options cuts down on the carbon footprint of the communities, in addition to increasing cash flow.
The shortage of affordable housing is a considerable national topic. According to Zillow, median home values grew by 17.7 percent over the past year, with projections of another 11.7 percent increase over the next 12 months.
Viewed as a major part of the solution to the nation’s shortage of affordable housing, manufactured housing offers a relatively economical option to those seeking home ownership.
Investor sentiment remains optimistic in the manufactured housing sector and is expected to continue throughout 2022, with focus on value and risk shaping behavior. As asset prices continue to climb to new highs, investors will adjust their approach to deploy capital in a recessionary environment, with manufactured housing proving to be on the more reliable performers.
Deployment challenges in several of the major commercial real estate sectors will continue to boost liquidity and capital inflows in the manufactured housing space. Seasoned groups will continue to raise capital, benefitting from an influx of new frustrated investors.
The need for affordable living options within the aging millennial along with America’s 55-plus populations are expected to continue to drive mid- and long-term demand for manufactured housing and promote innovation within the sector.
Scott Belsky is JLL Valuation Advisory National Practice Lead for Manufactured Housing. Zach Bowyer, MAI, is head of Alternative Real Estate Sectors for JLL Valuation Advisory.