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52TEN new mobile home builds

As mobile home park values continue to rise, it seems logical that new park construction would also be on the increase. With the demand for affordable housing at an all-time high, and mobile home parks (MHPs) representing the most affordable housing option, one might expect new parks to be springing up in every growing market across America. However, this is far from the reality.

The truth is there are just a handful of new parks built each year, not nearly at the pace one would think. In this exploration, we delve into the reasons behind why new mobile home parks are rarely built and what this means for current mobile home park owners and investors.

Reason #1

Pushback From Local Cities

Obtaining permits to build a new mobile home park is a nearly impossible task, regardless of the size of the city. Driven mostly by the bottom line, cities resist approval of zoning for new mobile home parks primarily due to their historically low tax revenue. Compared to other real estate, MHPs produce only a fraction of the potential tax dollars a city can collect per acre of land. This is due to low rental rates and the low number of units that can be built per acre.

As a comparison, a new four-story apartment building would have rental rates that can average 2-3 times more per unit than a MHP, and the number of units per acre could be 3-5 times more. This results in up to ten times more tax revenue for the city.

52ten mhp vs apts graph

It may seem political, wherein empty promises for affordable housing are made just to gather votes, but the real problem is MHPs simply do not produce enough tax revenue to cover the city’s cost for providing services, which creates a financial disincentive for approving new parks.

REASON #2

NIMBY (Not In My Back Yard)

The stigma associated with mobile home parks remains a significant hurdle for developers. Residents of established neighborhoods vehemently resist the prospect of a new mobile home park being built nearby. This resistance stems from the belief that the presence of a mobile home park negatively impacts property values and has the potential to attract blight and crime.

The enduring narrative that mobile home parks are undesirable persists in media portrayals and public opinion. Coupled with financial disincentives for cities, this deeply ingrained perception, whether accurate or not, influences public opinion and further contributes to the resistance against new parks being developed.

REASON #3

Remote Locations are a Poor Option

To overcome resistance from cities, potential developers must consider building new mobile home parks in extremely rural areas. However, this introduces a new set of challenges. Remote locations lack access to city water and sewer systems, necessitating the construction of private utilities. Building such infrastructure incurs significant costs, which undermines the financial wisdom of investing in new park development in the first place.

Moreover, filling up a new mobile home park in these remote areas is difficult and slow because these locations lack the demand required to make the project viable. As a result, the cost of capital and ticking clock of interest expense overwhelm the project when it takes too long to reach adequate occupancy.

REASON #4

Federal Promises Unfulfilled

In 2022, the Biden administration released its Housing Supply Action Plan which promised to usher in an era of affordable housing. Developers and manufacturers were optimistic that this plan would finally create the opportunity for new parks to be built across the country.

However, those promises have gone largely unfulfilled, as support from the federal government turned out to be an effort to expand financing and grant programs, neither of which solve for the challenges outlined in Reasons #1, #2, and #3 above.

To add insult to injury, shortly after the announcement of this plan, the Federal Reserve began raising interest rates, which further exacerbates the affordable housing crisis.

The Grim Reality and Future Outlook

Despite government rhetoric and optimism from developers, the mobile home park industry has not witnessed the building boom that was anticipated. The reality is new mobile home parks are unlikely to be built in any major city in America, and the few that do get built will face challenges that are hard to overcome.

The fundamental issues of low tax revenue, the financial burden on cities, public resistance, and the stigma associated with mobile home parks all create formidable barriers to new park development. New parks are still being built, but it takes the perfect alignment of the right location with existing zoning in place to make them financially attractive.

52TEN mobile home parks silver liningThe silver lining within this reality is that existing mobile home park owners can find solace in the security of their investments, shielded from the threats of new competition that plague other sectors of the real estate industry. The inherent challenges in new park development serve as a testament to the enduring strength and stability of existing mobile home parks in the real estate market.

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.

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