The Best Time in History to Invest in Affordable Housing
The Best Time in History to Invest in Affordable Housing
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Even before the pandemic, the U.S. was in an affordable housing crisis. As home prices and rental rates continue to grow faster than wages, the supply of affordable housing is shrinking at an alarming rate. This dynamic creates the highest demand in history and provides an opportunity to invest in a solution that makes sense for everyone.
The United States is in the middle of an unprecedented affordable housing crisis. More Americans than ever before need housing that meets their budget, but the traditional sources of affordable housing can’t even come close to meeting the demand. However, there is one affordable housing solution that is proving to be an opportunity for both vulnerable Americans and savvy investors: mobile home park investments.
A Crisis Like Never Before
The affordable housing gap in America has grown dramatically due to a number of factors. First among them is the ever-widening disparity between the cost of housing and the buying power of lower-income Americans.
Recent data shows that a person working a full-time, minimum-wage job can’t afford to rent an average two-bedroom apartment anywhere in the country. Even a one-bedroom apartment is out of reach in 95% of counties nationwide.
The problem isn’t confined to minimum-wage earners, either. Almost all lower-income Americans pay more than 30% of their income in rent, putting them in a category known as “cost-burdened.” Even in more expensive markets, nearly half of people earning up to $75,000 per year also fall into that category. For those with extremely low income, the burden of rent is insurmountable. Three-quarters of the lowest wage earners pay more than half their monthly income in rent.
Elderly Americans on fixed incomes are particularly hard hit by the crisis. The average monthly Social Security payment falls well short of paying the rent on even a studio apartment in the country’s priciest markets. The costs of assisted living facilities are even higher, forcing many seniors to choose to “age in place” wherever they are, unable to move to more affordable and safer housing.
A Lack of Solutions
The result is an extreme need for affordable housing, which isn’t being met by existing solutions. It’s estimated that the U.S. needs between 7 and 12 million new low-income housing units to meet the demand. But the country’s stock of affordable housing is not increasing. In fact, it’s decreasing at an alarming rate.
As developers move away from creating units with relatively low rents, and older units disappear, affordable housing is increasingly harder to find. About 4 million low-rent units were lost nationwide between 2011 and 2017. In some high-cost areas, as much as two-thirds of the affordable housing stock disappeared during that period.
Nor are publicly funded options solving the problem. Waiting lists for government-subsidized housing can be years long, and low-wage earners have no viable alternatives while they wait.
Enter: Mobile Home Parks
Amidst this crisis, the only viable solution is mobile home parks (MHPs), as they offer a housing alternative that many more Americans can afford. The average cost of a manufactured home is typically only 25% of a site-built home, and the average MHP space rent is typically only half of a two-bedroom apartment in most markets.
More importantly, the cost of living in an MHP is affordable for most lower-income Americans. Residents with lower income can live in a MHP for less than an apartment and for as little as 15% of their income if they own their mobile home.
Due to this affordability, the demand to live in a mobile home park is at an all-time high as well. Currently, more than 20 million Americans live in MHPs, and although nearly 100,000 new manufactured homes are built each year, the stock of new and existing manufactured homes isn’t enough to meet demand. That growing problem presents an incredible investment opportunity, and owning a mobile home park has become a booming business.
The Darling of Investment Real Estate
While most other commercial real estate is reeling from the impact of the coronavirus pandemic, mobile home park investments are thriving. Once the target of negative stereotypes, MHPs have quickly become the darling of real estate and are now emerging as one of the best-performing real estate investments in America.
That’s why many of the largest investment groups in the world are buying up MHPs at such a blistering pace. Well-known names include Sam Zell, Blackstone, and the Carlyle Group, as well as foreign investment funds, are acquiring parks in America. Others, like Warren Buffet, are heavily focused on the production of manufactured homes and the financing to go along with it.
As these institutional investors capture market share, local MHP investors are creating an opportunity for private individuals as well.
Investing in Mobile Home Parks
In these uncertain times, investors are seeking an alternative that not only can outperform other investments, but one that can survive a downturn as well. Due to their recession-resistant behavior, coupled with high demand and a shrinking supply, there has never been a better time in history to invest in mobile home parks.
Private investors looking to invest in MHPs can purchase one on their own, or choose to invest passively with an experienced syndicator (See a detailed breakdown of these two options here). The former requires an extensive skill set and a larger investment of time and money. The latter allows for a smaller investment and grants all the benefits of MHP ownership without the hassles and risks of going it alone.
Investing in mobile home parks is not just a smart investment. Approached correctly, park owners and investors can provide a quality living experience at an affordable price and know that their investment is also helping to meet the needs of one of America’s most vulnerable populations.
Curious how mobile home parks could provide you with a recession-resistant strategy?
This content is the perspective of the author and is not intended to be relied upon as a forecast, recommendation or investment advice, and is not an offer or solicitation to buy any securities or to adopt any investment strategy. The information and opinions contained in this content are derived from experience, historic data, and other sources deemed to be reliable, are as of the date of this content, and may change as subsequent conditions vary.