The manufactured housing community (MHC) sector is gaining momentum as a hot asset class within commercial real estate (CRE). While other real estate market segments are cooling, MHCs continue to attract significant interest due to their affordability, stable occupancy rates, and growing demand. Here’s a quick look at the trends and outlook for this thriving sector and an exploration of why it presents a lucrative opportunity for savvy commercial real estate professionals.
Changing perceptions and increased demand
Over the past few decades, the perception of manufactured homes has undergone a remarkable transformation. Modern designs, rapid construction, and affordability have helped erase old stereotypes about prefabricated housing. Innovations in the sector have led to the use of high-quality materials, greater energy efficiency, and improved aesthetics, making manufactured homes an appealing option for many.
As Ivy Zelman, a renowned expert in the housing market, highlighted, the manufactured housing industry is well-positioned to address affordability challenges, assuming the sector can overcome some lingering challenges of its own. Modern manufactured homes are often indistinguishable from site-built homes, which helps overcome the stigma associated with older mobile homes, but there is still a bit of NIMBYism that must be addressed.
Its affordability and modern appeal drive the significant demand for manufactured housing. Fannie Mae reports that MHCs are far less expensive to purchase than multifamily properties. The average MHC price-per-site as of the second quarter of 2023 was $77,000 — only a third of a traditional multifamily property price-per-unit of $221,000.1
Market trends and investment opportunities
Occupancy and rent growth trends
According to Northmarq research, occupancy rates for manufactured homes have been steadily increasing, reaching 94.7 percent by the end of 2023. Rents have also shown healthy growth, with a year-over-year increase of 7.3 percent, averaging $679 per month. This growth is particularly strong in the South, where rents have risen by 10.1 percent in 2023.2
Sales and transaction trends
The first part of 2023 saw a slowdown in sales volume. In the second half of the year, however, sales volume picked back up, indicating a potential for significant gains if current trends continue.
Financing trends
Fannie Mae and Freddie Mac are the preferred lenders for MHC investors. The two agencies offer competitive pricing and high leverage. Both focus on financing workforce housing, and manufactured housing communities fit well into that space.
Filling gaps in the MHC buyer pool, non-profit groups with access to cheaper capital often outbid typical investors for preferred deals. Many non-profit groups leverage their low capital cost and programs, such as HUD’s new program for MHC communities and state-specific property tax abatements, to win deals.
Institutional investment overtakes mom-and-pop MHCs
In recent months, the MHC market has shifted toward institutional investment. Unlike the mom-and-pop MHCs of the past, MHCs with 75+ spaces are now largely owned by institutional investors.
Challenges and regulatory issues
Cost increases
In 2017, the average sales price of a manufactured home was $71,900. According to Census data, by the end of 2022, the price had spiked 77 percent to $127,300. The sector faces challenges such as rising costs for debt, insurance, construction, labor, and supplies. Higher property taxes and insurance costs are additional burdens for developers and investors.
Regulatory hurdles
Potential new rent control laws and other regulatory issues could impact revenue generation. For example, in Oregon, pending regulations could affect MHC investments, causing some investors to look for opportunities in more business-friendly states.
NIMBYism
Overcoming the "Not In My Backyard" (NIMBY) sentiment is crucial for the growth of manufactured housing. Changing public perceptions and showcasing the quality of modern manufactured homes are essential to gaining broader acceptance and approval for new communities.
Future outlook for MHC
Despite the challenges, the outlook for MHCs remains positive. As traditional single-family homes become increasingly unaffordable, the demand for manufactured homes is expected to grow. Commercial real estate professionals can capitalize on the stable occupancy, rising rents, and increasing demand in this sector.
With the potential for regulatory and cost challenges, diligent community management and strategic decisions are crucial for achieving desired results. As the market evolves, MHCs will continue to play a vital role in providing affordable housing solutions and offering profitable opportunities.
Work with W&D MHC experts
Manufactured housing communities represent a promising strategic opportunity in the current real estate landscape. By understanding market trends, financing options, investment opportunities and potential challenges, commercial real estate professionals can strategically position themselves to benefit from this growing asset class. With stable occupancy rates, rising rents, and increasing demand, MHCs are set to continue their upward trajectory, making them a highly sought-after asset for commercial real estate professionals looking to diversify their strategy.
To learn more about MHC strategic opportunities, contact our MHC experts today.
1 “Multifamily Affordable Housing Market Commentary,” Fannie Mae, September 2023.
2 “Trends in Manufactured Housing Sector: Unlocking Opportunities for Investors, Northmarq, April 2024.
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