OUR MHC HISTORY AFFECTS US TODAY
Let’s talk about Trailer Parks…just kidding…we haven’t owned and operated “Trailer parks” for decades. Nothing will get us MHC owners out of our chairs faster than a bad-tempered tomcat, than when we hear the outsiders use that term. I do not categorize or use the word “outsider” looseley.
We all have a Seattle colleague, a consummate professional specializing in 1031 tax law, (I’ll not name names) who for the last 41+ years has accused Manufactured Housing Community (MHC) owners of having a “secret handshake.” Our friend has owned almost all classes of investment real estate and represented tens of thousands of clients in tax-deferred exchanges; he wants “into” our little club. Although to this day, he kids me in good fun about our well-kept secret, he is earnest about wanting to know more and possibly invest in this misunderstood genre of investment real estate. To date, he hasn’t become a “club member.”
So, over the course of the next few articles, webinars, online classes etc., we will explore our industry: Where we have come from, how to create/preserve asset value and cash flow, what to do or avoid in management, maintenance techniques, the psychology of landlord-Resident relationships AND the good, bad and ugly of our often maligned, misunderstood and stigmatized MHC investments. There is much to discuss in making your MHC investment a win-win for you, your vendors, your bankers AND your Residents.
We should begin by reviewing our MHC history to better understand our future. The first Caravan Club (in England and elsewhere the word caravan is still used to refer to dwellings manufactured elsewhere and brought onsite) was formed in 1907. By the late 1930’s, the precursors to today’s manufactured homes (“trailer coaches” with permanently installed wheels) were being made in lengths from 8-18 feet, in a lesser quality and vaguely comparable to apartments. The trailers included gas cooking, chemical toilets, shower/bath, “cocktail cabinets” and sleeping accommodations. People in the years immediately following WW II became acquainted with permanently sited trailer living on leased land where these factory-built structures were sited. (Therefore, from the inception of land-leased communities until today, the dynamic of Residents being “captive consumers” remains the managerial, legal and political consequence of owning the land underneath the living quarters of Residents’ chattel.) By the late 1940’s and early 1950’s, the demand for this type of housing stock dramatically increased. To meet an accelerating need to compete with more traditional “sticks and bricks” living, the nascent MH manufacturing industry evolved by adding size and amenities. The cost, speed to deliver, efficiency, appeal (did I mention cost?) of factory-built structures presented distinct advantages over living in apartments or single-family dwellings.
Located in marginal industrial, rural and urban land, MHCs were developed with utilities (and occasionally some amenities) to site these smaller manufactured dwellings. Changing from eight to ten-foot wide homes in 1954, MHC home site developments were made larger; there also was no longer the need for MHC developers to build public bathrooms, since factory installed shower and bathtubs were included in all models. However, with more utility consumption, accommodation for upsizing water and sanitary sewer capacity at each homesite was needed. With an eye toward change of land use, newer MHCs were built away from industrial and arterial locations to much larger and more open areas. MHCs were located adjacent to population centers and were designed more like housing subdivisions, rather than “trailer parks”.
With people permanently living in this new form of housing, rather than calling them trailers the manufacturers and retailers wanted to enforce the concept of house and home. The term of art Trailer became Mobile Home…not a huge improvement conceptually. Our industry has not been well served 70 years later by replacing the “T” word with the “M” word…many news articles still use the T word!
To meet America’s need for more affordable housing by the early 1960’s, over 100,000 factory-built homes were sold annually. Nationwide, 1973 was the acme year with 579,940 homes shipped from factories. While installed appliances and furnishings started to become virtually indistinguishable from conventional homes, there remained an enormous difference in the rooms of “single wide” homes. Floor plans were designed with an in-line configuration which was less appealing. As a response to this, manufacturers changed their business model to meet more modern preferences by building two sectioned or “double wide” structures for owners who wanted “squared living” rather than “linear living.” MH’s architectural and size evolution mandated the next generation of change in MHC developments, requiring larger lots with paved streets and underground utilities. Real estate investors, many of whom had previously owned apartments, quietly started buying communities and discovered the virtues and pitfalls of managing MHC. They were not the kind of investments discussed over turkey at Thanksgiving, but more about our stigmatized business in future articles.
In 1968, Washington instituted its own certification standards for MH construction. This was later amended to require conformity with the National MH Construction and Safety Standards Act of 1974. An important date with all this tedious history is the demarcation of June 15, 1976 and the term of art “PRE-HUD” was born: As MHC Owners know, 6.15.76 was the date when the Federal HUD code was adopted. Washington State Cities and Counties will not allow any “pre-HUD” structures even moved or sited without being upgraded to HUD standards. Many jurisdictions will not allow placement of single sectioned homes at all. MHs built thereafter have a HUD “sticker” affixed to structures. The majority of MHs built in the last few decades require 200 AMP electrical supply, necessitating an upgrading of MHC electrical service in older communities… We will address how we upgrade old infrastructure while retaining occupied homes in later articles.
Within one block of where President Carter in 1977, and then candidate Reagan in 1980 stood “appalled” at conditions in that ravaged area of New York City, planners had finalized a plan for a 90 unit manufactured housing sub-division in the South Bronx. In 1977, the Washington State Legislature enacted a departure from the Residential LLT Act with the Mobile Home Landlord Tenant Act, which has been amended in many of the ensuing 44 years.
Accompanying a strong demand for housing simultaneous with inflation in the very early 1980’s, America had an emergent housing affordability crisis. In meeting 1982 market conditions, manufacturers shipped over 239,000 homes while there were 413,000 new site-built homes sold in that same year. In the decade of the 1980’s, manufactured housing contributed 20 percent of all housing units added to Washington State’s housing stock, representing a major component in WA city and county’s affordable housing market. The original moniker “mobile home” was appropriate early-on in our industry, but since the 1990’s, less than a fraction of 1% of Washington’s MHs homes have been moved. Unfortunately for advocates of affordable housing AND our industry, in 1990, Washington’s Growth Management Act attenuated the future development of MHCs. By 1994 less than 5% of the previous decade’s annual community developments were permitted and built. Ironically, by that same year nationwide, almost 304,000 homes were shipped from manufacturers, a 20 year high. Interestingly, 90.4% of those built and shipped in the West Coast were double section homes.
Within the last twenty years, investing in and operating MHCs has become popular with REITs, lenders, Wall Street and domestic/international investors. The last decade has witnessed an updraft in rental rates and development costs of SFDs, apartments and MHCs. This has been driven and magnified by the huge rise in land, construction and permitting costs. However, the affordability edge that MHCs offer Residents has kept the last twenty year’s WA MHC vacancy rate at an enviable tiny fraction of 1%. Over the years, the hue and cry of Residents and their legislative advocates in our State legislature has caused modification of Washington’s MH-LLT Act. Had RHA’s lobbying force not been extremely busy advocating on our behalf, draconian measures regulating our rent might have been enacted.
In review: The “call” for affordable housing after WW II was met by dwellings built offsite in factories around the country; small structures were brought onto utility ready parcels with new home-owners paying rent; size and utility changes in MHs dictated by the burgeoning market’s consumer tastes required different infrastructure and lot size; laws were enacted to address the idiosyncrasies of the MH LLT relationship; notwithstanding the need for more housing for lower, middle class and retired citizens, Land-Use Laws were enacted as an impediment toward development.
The additional reason for the above partial recitation of MHC history, is to give readers perspective on the evolution of our industry…but WHY do we care about all this? Washington’s MHCs were built from the 1940s though 2015. Smart MONEY is needed to morph our businesses to accommodating change, but not just the physical kind. If you own or are considering a MHC investment, you might be tasked with upgrading in one way or another. Necessary changes may be a result of your infrastructure coming to the end of its useful life; you might need to cultivate relationships with your MH retailers when very old homes are no longer habitable by Residents or their heirs; your former method of AR/AP accounting might need change to online formatting, etc.
Impediments to our MHC business (whether they arise from government, pro-bono attorneys, bankers or just the vagrancies of life) are either going to impede or inspire us as owners/operators/investors. RHA is all about meeting any impediments head-on to educate and inspire us to create asset value and increased cash flow in being better operators in multi-family landlording. In future articles, we will share tricks of the trade gleaned from years of MHC ownership/development/ management. Hopefully, this will help you with your managing and shaping vibrant communities in which Residents are happy to live paying market rents.
Finally, a shameless plug for helping us find our way towards being successful MHC investors and operators, regardless of our level of competency and sophistication: Residential Landlording like any business, requires strategic relationships that are imperative for the most efficient and profitable operator. All your Residents and contacts in your cell phone look to YOU being well educated and informed about our industry. One of the very best pathways toward economic success in our industry is the information available through RHA. RHA has enormous resources available for the asking with a dedicated and professional staff who will work to get you whatever you need to help you become a better operator.
Forgive the platitude: Like everything else in life, the only thing that is constant is change. We are all creatures of habit, comfortable with familiarity. However, if you are not using the latest resources available, you will share the fate of most dinosaurs: Remember when Radio Shack was THE go-to place for electronics? You might not share that same fate, but a lot of money will be left “on the table” by resisting change. We can also experience some real satidfaction in our profession by taking advantage of new business models. Reach out and join RHA for resources! ‘nuff said
NEXT ARTICLE: The Cheapest Community Upgrade Money Can’t Buy – Four Sided Inspections.
Joel Erlitz has owned and operated MHCs in the four Northwestern States over the last 40+ years. He was appointed twice by Governors to represent MHCs of Washington on State funded task forces. He has been active in State politics as they related to MHCs, and has provided expert testimony on issues relating to management, ownership, appraisal and lending practices for land-lease communities. For further information, please contact me at Jserlitz@comcast.net.