Modern Manufactured Homes: An Important Affordable Housing Option

Manufactured housing is an important, yet often overlooked, affordable housing option. These homes are factory built, placed on a permanent chassis, and delivered to a housing site. Manufactured housing is less expensive and faster to build than onsite, stick-built homes, offering an opportunity to quickly increase much-needed housing supply. However, regulatory, financial, and cultural barriers prevent significant investment in and expansion of manufactured housing options. Adopting regulatory policies that encourage the production of more manufactured homes and allow for cheaper and better financing would increase access to this affordable housing option.

Background

The design and production of manufactured homes has evolved over time. Their quality can equal that of stick-built homes, while costing, on average, 40% to 50% less to produce. Manufactured homes are built to meet a single national U.S. Department of Housing and Urban Development (HUD) standard—or HUD Code—based on the National Mobile Home Construction and Safety Standards Act of 1974. HUD routinely updates the standard to enhance quality, safety, and energy efficiency. Manufactured homes can now be produced to mimic stick-built homes with pitched roofs, garages, and decks.

For many years, manufactured housing represented 15% to 25% of the new homes produced annually. The sector reached peak production in 1996, when manufactured homes represented 25% of new homes. Since that time, all new manufactured housing as a share of the market has declined significantly. Currently, manufactured housing represents about 10% of all new homes constructed and about 7.5% of existing homes—providing housing for approximately 20 million Americans. The question arises: With the U.S. facing an acute shortage of affordable homes, what is preventing the manufactured housing sector from reaching its full potential as a source of affordable housing supply?

Primary Challenges

Freddie Mac, the Consumer Financial Protection Bureau, and the Urban Institute have all recently released reports examining the opportunities and challenges facing the manufactured housing sector. Among the most significant barriers to increasing the supply of manufactured housing cited are land-use restrictions and the lack of available, affordable financing.

1. Land-Use Restrictions

Many communities have zoning and land-use policies that prevent manufactured homes from being sited in all but a few locations—either explicitly banning them or by instituting policies like minimum lot sizes that make manufacturing homes more costly and difficult to site. The Manufactured Housing Institute notes that many communities have, or are actively considering, mandates that manufactured homes be placed on lots of 1 to 10 acres, or more. By requiring more land to be acquired, sometimes far in excess of a manufactured home’s value, minimum lot sizes can precipitously increase the cost of manufactured homes, make them less affordable and viable, and limit the amount of land overall that is available and suitable for new homes.

Given the rising cost of land, existing owners of manufactured housing communities are also increasingly selling these properties for redevelopment. The high price of land further reduces the value proposition of manufactured homes vis-à-vis stick-built homes. Regulatory limits on manufactured homes also include outright bans, including some based on the age or value of the home. This is often due to the perception that manufactured homes will not fit into existing communities’ design aesthetic and quality, reducing the neighboring property values.

2. Financing

Financing manufactured homes has been a longstanding challenge. Manufactured homes are typically purchased from dealers, similar to how one purchases a car. An estimated 42% to 90% of these homes (depending on the source and the particular datasets analyzed) are secured as personal property through chattel loans (as opposed to real property eligible for mortgage financing). Manufactured housing dealers often offer this form of financing, much like financing a car purchase. Because many buyers are unaware of their full range of financing options, they often obtain financing from the dealer even if there are lower-priced lending options available. Chattel loans are secured by the manufactured home and not the land on which the home is located, though borrowers may directly own the land for which the home is intended.

Generally, chattel loans have higher interest rates than traditional mortgages, are rarely refinanced, and offer significantly fewer tax benefits and consumer protections. For example, lenders can repossess manufactured homes with chattel loans under similar conditions as cars. While chattel loans for a manufactured home purchase can be insured by the Federal Housing Administration under its Title I program, the maximum loan amount is $69,678—a level too low for many buyers. As such, FHA’s share of the market is relatively small. Moreover, the government-sponsored enterprises, Fannie Mae and Freddie Mac, do not offer chattel financing—only financing for manufactured homes that are built to HUD standards and titled as real property.

Complicating financing are rules and other challenges related to titling and appraisals:

• While over 90 to 95% of manufactured homes are never moved, many jurisdictions do not allow them to be titled as real property.
• Historically, manufactured homes depreciated in value, in contrast to stick-built homes. Research has indicated, however, that if both the home and land are owned together, with the home fixed to a foundation and well-maintained, its value can appreciate like a neighboring stick-built counterpart.
• Appraisers may have limited experience with these homes—a concern Fannie Mae is working to address by introducing a course on appraising manufactured homes.

HUD, Freddie Mac, and Fannie Mae are seeking to enhance existing products, tools, and policies to address the weaknesses in manufactured home financing. These include outreach and education on manufactured housing as well as initiatives like Fannie Mae’s MH Advantage program, which provides traditional fixed-rate financing for manufactured homes that have architectural details such as pitched roofs, porches, and attached garages that mimic traditional home designs. HUD also recently joined with the manufactured home industry to introduce a new product that combines manufactured home advantages with modular and on-site construction—CrossMod. These homes are placed on a permanent foundation and include architectural details and energy efficiency features that allow for traditional home financing. This type of innovative private-public collaboration is a welcome addition to the housing supply toolbox.

Policy Developments

On the federal level, there is a growing recognition of the importance of manufactured homes as an affordable housing option. For example, there have been efforts in the 117th Congress to open up HUD grant programs to manufactured housing communities, provide tax incentives to support nonprofit- and cooperative-owned manufactured housing communities, and add flexibility to manufactured housing energy efficiency standards. HUD has also released a proposed rule, open for public comment until September 2022, to update the HUD Code, incorporating recommendations by the Manufactured Housing Consensus Committee into its construction and safety standards for manufactured housing.

State and local governments can also take action to address the barriers to more manufactured housing, for example, by reforming land-use regulations, simplifying titling, and educating residents on their options on titling and financing. Examples of best practices and lessons learned can be drawn from across the country:

• California permits manufactured housing that is fixed on a foundation on any lot zoned for single-family housing, while allowing local jurisdictions to mandate specific architectural details to ensure the homes are consistent with local neighborhood design. (California has since eliminated single-family only zoning statewide). The state has also created a special class of contractor license to permit a single business to be able to install manufactured housing, rather than requiring different trades to be involved.
• Arkansas mandates that localities permit manufactured homes and does not allow them to restrict manufactured housing to specific communities or parks.

Manufactured housing can be a tool to address the affordable housing crisis. Policymakers, however, need to address the issues related to land use and zoning, titling, appraisals, and financing to ensure it is a more widely available and affordable housing option.