For years, America has been in the middle of an affordable housing shortage, and the problem has grown steadily worse. Now, we’re experiencing a full-blown crisis. The majority of Americans do not have access to affordable housing, and even households with above-median income struggle to handle the costs of traditional housing.
In the midst of this crisis, one solution is filling the affordable housing gap that’s plaguing our country. It’s proving to be a win for both residents in need and savvy real estate investors.
The Crisis Worsens
Even before the economic damage wrought by COVID-19 and subsequent inflation, most Americans were in dire need of affordable housing options, and those options were few and far between. In the midst of a pandemic, no two-bedroom apartment anywhere in the country was within the budget of someone working a minimum-wage job. One-bedroom apartments were almost as inaccessible, being too expensive in 95% of counties nationwide.1 Since then, the cost of housing has increased dramatically, making matters even worse.
Americans with low incomes pay a far larger share of their earnings on housing expenses than others. Most pay in excess of 30% of their income on rent, and many pay more than half.1 Shockingly, people making over $75,000 in the most expensive real estate markets fall into this “rent-burdened” category. In fact, almost half of American renters are rent-burdened, regardless of their income level.2
Older Americans are among the most affected. The average monthly Social Security payment won’t cover rent on even the smallest apartment anywhere in the country, and assisted living facilities are far beyond the budgets of most older people on fixed incomes. The result is that older Americans often have no choice but to “age in place” wherever they are, as they are unable to find a place that is more affordable, or safer, as they grow older.
Affordable Housing is Disappearing
Given the unprecedented need for affordable housing, you might expect developers to fill that void in the market, but they’re not doing that. High material and labor costs make it almost impossible to build lower-rent units and the reality is, there is simply more profitability in building higher priced units.
While the cost of new construction remains prohibitive, older affordable units are being renovated to garner higher rent, causing the overall stock of affordable housing to shrink further at precisely the time that it needs to be growing. About 4 million low-rent units were lost nationwide over the last decade. In some high-cost areas, as much as two-thirds of the affordable housing stock disappeared during that period.2
With the lack of new affordable units being built and older affordable units disappearing from the market, some estimates say that the country needs as many as 7 million new affordable housing units to meet existing demand.1
Mobile Homes Offer the Solution
Mobile homes, also known as “manufactured homes,” are not built on site. Rather, they are constructed in factories and shipped out to their destination. Because they are built in a factory, they are far less expensive and faster to build than a traditional site-built home. Manufactured homes are also energy efficient, which could save money on monthly utility bills.3 All in all, mobile homes offer the opportunity for home ownership at a fraction of the cost.
In 2021, the average cost of a brand new manufactured home was $80,000. That same year, the average cost of a single-family, site-built home was $390,900, and that was just for the home. Land adds nearly another $100,000 to that cost.4
When it comes to affordable housing options, it’s difficult to beat mobile homes. At a time when traditional homes are out of reach for most Americans, mobile homes are gaining ground as the affordable alternative.
The Biden administration agrees, sharing in a White House statement that mobile homes are a viable solution for the shortage of affordable homes. Furthermore, the administration plans to boost the industry by expanding financing for mobile homes through Freddie Mac.
Mobile Home Parks: A Critical Piece of the Puzzle
While mobile homes are proving to be the affordable alternative, people also need an affordable place to put them. Land is expensive and this is where mobile home parks come in.
A mobile home park is essentially a giant parking lot where mobile homes can be placed. The owner of the mobile home park takes care of the roads, landscaping, clubhouse, pool, and all the other common amenities, and provides parking spaces with utility connections for residents.
Each month, residents pay the park owner a monthly fee to park their home on the space. The combined benefits of an inexpensive mobile home and inexpensive rent for a space create the most affordable housing solution.
With the average cost of a mobile home being 75% less than a site-built home, and the average cost to rent a space in a mobile home park being 50% or less than an apartment in the same neighborhood, this combination is the solution to America’s affordable housing problem.5
Due to this affordability, the demand to live in a mobile home park is at an all-time high. Currently more than 20 million Americans live in mobile homes, and mobile home manufacturers are surging to meet production demand. This demand presents an opportunity for savvy real estate investors in the booming mobile home park business.
Institutional Investors Eye Recession Resilient Investments
The pandemic was rough on most real estate investments, but mobile home parks proved to outperform other real estate through that crisis. Similarly, mobile home parks tend to perform well in recessions and times of greater economic uncertainty.
Institutional real estate investors such as Sam Zell, Blackstone, and the Carlyle Group understand the recession resilient qualities of mobile home parks and are allocating significant capital to the asset class. At the same time, investors like Warren Buffet are heavily invested into the business of manufacturing mobile homes.
The interest of larger investment groups does not mean that individual private investors are excluded from mobile home park investment opportunities. Those who know where and how to invest can take part in solving the affordable housing crisis too.
Mobile Home Park Investments for Private Investors
In the aftermath of the pandemic, as Americans are feeling the pressures of inflation and economic uncertainty, the affordability of mobile homes in mobile home parks has never been more attractive. More people than ever need an affordable housing solution, and it’s crucial that mobile home park investors rise to meet the demand.
The increase in mobile home park investments is partly driven by the simplicity for private investors to participate. Private investors don’t need the connections of institutions to delve into mobile home park ownership, nor the skills and time required to buy and run a mobile home park on their own. Investing through a mobile home park syndicator allows for a passive investment, in which the syndicator finds, buys, and manages the parks on behalf of investors.
Demand for affordable housing in America is here to stay, and mobile home parks are uniquely positioned as strategic real estate investments that fill the gap in supply. At a time when the majority of Americans simply can’t afford traditional housing, mobile homes and mobile home parks offer a much-needed alternative to soaring home prices and skyrocketing rents.
Fortunately, the ease of investing in mobile home parks makes it possible for individual private investors to be part of the solution.
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.