A few weeks ago, Matt Yglesias wrote “How to Unleash a Trailer Home Boom," which outlines a strategy for getting more manufactured homes built. Broadly, Yglesias proposes ending HUD code requirements that manufactured homes have a steel chassis, making it easier and less expensive to finance a manufactured home, and removing restrictive zoning practices that prevent manufactured homes in many jurisdictions.
Great post, thank you! It’s refreshing to read a calm, non-ad hominem correction of another person’s work. I subscribe to Slow Boring and hope this discussion continues.
Manufactured homes suffer from the same challenges as site-built homes, namely that the land acquisition costs are too high to allow easy access to the market.
In Washington, it’s difficult to put residential homes on greenfield sites due to the Growth Management Act that protects nature, resources, etc. No amount of permissive financing, easy access, or inducements to buy a manufactured home will change the fact that there is no land for you to site it.
Who cares if your home costs 50k, 100k, or 200k to build. If the lot costs $1M, then it’s all for nothing.
Sadly, where we cannot build out, we can also not build up.
As a builder I have been saying it for years, we need more trailer homes. But left activists only want to talk about tiny homes, because they don't want to talk about kids and family.
Building any kind of house on vacant land requires the building of infrastructure (roads, sewer line extensions, stormwater management, etc.) That process is expensive and always made difficult by government. If a developer is going to go through all that work, they aren't going to do it for the cheapest possible homes. You need a more expensive home to justify a higher lot price to make the project worth the risk.
Benjamin’s comment below is spot on, it’s all a function of land availability and land cost. The best way to reduce land costs (and to spread fixed development costs across a larger base of units or square footage) is to increase density per parcel. Which explains why manufactured housing is currently underutilized as a source of affordable housing in the path of growth: outside of mobile home parks, the product types offered by HUD factories today are geared towards low density single family housing.
HUD code was recently updated to address multi-unit (up to three) manufactured homes, but the glaring gap is that HUD code doesn’t cover two-story manufactured homes. There’s an Alternative Construction path but this adds significant costs, delay risks, and uncertainty to projects. As you can imagine, the venn diagram intersection of “density” and “single-story” development is very small, so HUD currently has limited appeal to both spec builders (~80% of homes) and infill homeowners. The exception to this is ADU’s which has provided a major boost to the HUD industry (see Villa Homes).
There are a couple other policy changes (current permissive zoning pertains to conventional single family not duplexes or townhomes, HUD steel chassis requirement increase floor to floor heights and/or require complex design/engineering) that could help. IMO a big reason isn't even policy, it's market dynamics. Existing manufactured housing companies aren't fully committed to this product type since it's so different from their bread and butter and have historically sold to consumers via dealers rather than to developers. Meanwhile, modular companies build two story all day long and are more than happy to take this business.
Many manufactured homes, particularly in urban/suburban areas, are placed on rented land with short leases. That's why mortgages might be unavailable. These homeowners also risk being displaced if the land is sold. Being located on rented land isn't an inherent characteristic of manufactured homes, but, at least in the US outside rural areas, it's common practice.
Hi! I'm a big fan of the newsletter. I sent this column to a friend who's a finance professor with some real estate and trailer-relevant experience. He had some interesting remarks about insurance. He gave me permission to share his comments (and contact info, if you would want to discuss research.)
"""
Pretty neat. This could be an interesting avenue of RE research. Here are my initial thoughts:
I was surprised the article did not discuss insurance very much, but INSURANCE is a major factor. Manufactured home insurance tends to be more expensive (for a fixed level of coverage) than traditional construction. An interesting contracting difference: most manufactured home policies will pay the depreciated cash value of the property. In contrast, most homeowner's insurance policies will pay the replacement value of the property (regardless of depreciation). Part of the discrepancy reflects the higher (perception of) physical risk for manufactured properties, but some of it originates from moral hazard (see #2 below).
Several frictions arise from the "mobile" part of manufactured homes. They can be converted from real property to chattel property at a lower cost than traditional homes. The convertibility makes lenders, insurers, and governments wary. Because the improvement can be removed fairly easily:
1. The lender's collateral is riskier as improvements are easier for a defaulting borrower to remove. We see this in foreclosure, where homeowners will sell appliances, copper piping, wiring, fixtures, etc when they know the home will be seized by the lender.
2. The insurer's ability to mitigate losses is diminished, and they are potentially open to greater moral hazard. If a storm sweeps through and merely damages the manufactured home, the owner could remove the damaged home, claim total loss, and ask for a full replacement. This is probably why insurers will not insure manufactured home at full replacement value. I have met at least one "trailer park millionaire" that I suspect engaged in this type of fraud to make a fortune from Florida manufactured homes.
3. The government's appraisal of the property, and therefore the expected tax revenues, are at greater risk. Even *nice* manufactured homes are susceptible to movement, and that does not even account for the NIMBY attitudes and negative perception of 'trailer parks' that are pervasive throughout the country.
Renaming "mobile" homes to "manufactured" homes is certainly a linguistic step towards changing perceptions. However, as long as the fundamental "mobility" remains, the above issues will persist.
I think a potential solution exists in promoting "modular" homes as the endgame for a manufactured housing boom. Modular homes have both manufactured and traditional components assembled on site. I think governments, lenders, and insurers would be more open-minded towards modular homes, as it creates greater permanence. The percentage of a home's square footage that can be manufactured will have to be regulated, but it could mitigate the mobility issue.
I am uncertain as to whether modular home designs are much cheaper per sqft than traditional for construction. That said, I think a "split level modular" home could be a great design for people. The single-story portion could be a manufactured component, and the two-story portion could have a crawlspace/slab foundation. The manufactured portion could also house the riskier parts of the home (i.e., the kitchen, water heater, furnace, a/c); making it partially less-costly to replace in event of an accident and improving insurability.
Thanks for sending over the article. A nice coffee read.
We could open up the code to allow more dirt roads and habitation in pole barns too, but I think most of us value the prevailing standards, especially in town. Changing the name, the method of title and taxation, or the facade of a mobile home does not make it structurally similar to a traditional site-built home. The mobile home category is all about allowing a substandard (but decent) alternative to a small segment of the housing market. The wisdom of greatly expanding that segment is very questionable.
The Texas House of Representatives passed a bill to allow manufactured housing in all single-family residential districts in the state and gave cities the right to require that the homes appraise out at or above the median value of the homes within 500 ft (https://capitol.texas.gov/tlodocs/88R/billtext/html/HB02970E.htm), but that bill died in the Texas Senate unfortunately.
I would argue more for a scenario where houses are done on a large scale in situ. As others have mentioned, the lots and infrastructure are large parts of the cost and really, is it that much more efficient to build a cheapy framed house in a factory (and then causing traffic jams when shipping it, lol) than on site en masse? And I don't know why but manufactured homes always seem to look like crap. For lower cost we need massive projects on relatively inexpensive land. Daly City, CA comes to mind, yeah it was monotonous back in the day but it was a house with a yard and it didn't look blighted.
Great post, thank you! It’s refreshing to read a calm, non-ad hominem correction of another person’s work. I subscribe to Slow Boring and hope this discussion continues.
Manufactured homes suffer from the same challenges as site-built homes, namely that the land acquisition costs are too high to allow easy access to the market.
In Washington, it’s difficult to put residential homes on greenfield sites due to the Growth Management Act that protects nature, resources, etc. No amount of permissive financing, easy access, or inducements to buy a manufactured home will change the fact that there is no land for you to site it.
Who cares if your home costs 50k, 100k, or 200k to build. If the lot costs $1M, then it’s all for nothing.
Sadly, where we cannot build out, we can also not build up.
As a builder I have been saying it for years, we need more trailer homes. But left activists only want to talk about tiny homes, because they don't want to talk about kids and family.
Building any kind of house on vacant land requires the building of infrastructure (roads, sewer line extensions, stormwater management, etc.) That process is expensive and always made difficult by government. If a developer is going to go through all that work, they aren't going to do it for the cheapest possible homes. You need a more expensive home to justify a higher lot price to make the project worth the risk.
Benjamin’s comment below is spot on, it’s all a function of land availability and land cost. The best way to reduce land costs (and to spread fixed development costs across a larger base of units or square footage) is to increase density per parcel. Which explains why manufactured housing is currently underutilized as a source of affordable housing in the path of growth: outside of mobile home parks, the product types offered by HUD factories today are geared towards low density single family housing.
HUD code was recently updated to address multi-unit (up to three) manufactured homes, but the glaring gap is that HUD code doesn’t cover two-story manufactured homes. There’s an Alternative Construction path but this adds significant costs, delay risks, and uncertainty to projects. As you can imagine, the venn diagram intersection of “density” and “single-story” development is very small, so HUD currently has limited appeal to both spec builders (~80% of homes) and infill homeowners. The exception to this is ADU’s which has provided a major boost to the HUD industry (see Villa Homes).
There are a couple other policy changes (current permissive zoning pertains to conventional single family not duplexes or townhomes, HUD steel chassis requirement increase floor to floor heights and/or require complex design/engineering) that could help. IMO a big reason isn't even policy, it's market dynamics. Existing manufactured housing companies aren't fully committed to this product type since it's so different from their bread and butter and have historically sold to consumers via dealers rather than to developers. Meanwhile, modular companies build two story all day long and are more than happy to take this business.
Many manufactured homes, particularly in urban/suburban areas, are placed on rented land with short leases. That's why mortgages might be unavailable. These homeowners also risk being displaced if the land is sold. Being located on rented land isn't an inherent characteristic of manufactured homes, but, at least in the US outside rural areas, it's common practice.
Hi! I'm a big fan of the newsletter. I sent this column to a friend who's a finance professor with some real estate and trailer-relevant experience. He had some interesting remarks about insurance. He gave me permission to share his comments (and contact info, if you would want to discuss research.)
"""
Pretty neat. This could be an interesting avenue of RE research. Here are my initial thoughts:
I was surprised the article did not discuss insurance very much, but INSURANCE is a major factor. Manufactured home insurance tends to be more expensive (for a fixed level of coverage) than traditional construction. An interesting contracting difference: most manufactured home policies will pay the depreciated cash value of the property. In contrast, most homeowner's insurance policies will pay the replacement value of the property (regardless of depreciation). Part of the discrepancy reflects the higher (perception of) physical risk for manufactured properties, but some of it originates from moral hazard (see #2 below).
Several frictions arise from the "mobile" part of manufactured homes. They can be converted from real property to chattel property at a lower cost than traditional homes. The convertibility makes lenders, insurers, and governments wary. Because the improvement can be removed fairly easily:
1. The lender's collateral is riskier as improvements are easier for a defaulting borrower to remove. We see this in foreclosure, where homeowners will sell appliances, copper piping, wiring, fixtures, etc when they know the home will be seized by the lender.
2. The insurer's ability to mitigate losses is diminished, and they are potentially open to greater moral hazard. If a storm sweeps through and merely damages the manufactured home, the owner could remove the damaged home, claim total loss, and ask for a full replacement. This is probably why insurers will not insure manufactured home at full replacement value. I have met at least one "trailer park millionaire" that I suspect engaged in this type of fraud to make a fortune from Florida manufactured homes.
3. The government's appraisal of the property, and therefore the expected tax revenues, are at greater risk. Even *nice* manufactured homes are susceptible to movement, and that does not even account for the NIMBY attitudes and negative perception of 'trailer parks' that are pervasive throughout the country.
Renaming "mobile" homes to "manufactured" homes is certainly a linguistic step towards changing perceptions. However, as long as the fundamental "mobility" remains, the above issues will persist.
I think a potential solution exists in promoting "modular" homes as the endgame for a manufactured housing boom. Modular homes have both manufactured and traditional components assembled on site. I think governments, lenders, and insurers would be more open-minded towards modular homes, as it creates greater permanence. The percentage of a home's square footage that can be manufactured will have to be regulated, but it could mitigate the mobility issue.
I am uncertain as to whether modular home designs are much cheaper per sqft than traditional for construction. That said, I think a "split level modular" home could be a great design for people. The single-story portion could be a manufactured component, and the two-story portion could have a crawlspace/slab foundation. The manufactured portion could also house the riskier parts of the home (i.e., the kitchen, water heater, furnace, a/c); making it partially less-costly to replace in event of an accident and improving insurability.
Thanks for sending over the article. A nice coffee read.
"""
We could open up the code to allow more dirt roads and habitation in pole barns too, but I think most of us value the prevailing standards, especially in town. Changing the name, the method of title and taxation, or the facade of a mobile home does not make it structurally similar to a traditional site-built home. The mobile home category is all about allowing a substandard (but decent) alternative to a small segment of the housing market. The wisdom of greatly expanding that segment is very questionable.
Wow, a poorly researched article from Matty? Shocked I tell you, shocked!
Is the Arkansas spike from Katrina or other 2005 hurricane damage?
The Texas House of Representatives passed a bill to allow manufactured housing in all single-family residential districts in the state and gave cities the right to require that the homes appraise out at or above the median value of the homes within 500 ft (https://capitol.texas.gov/tlodocs/88R/billtext/html/HB02970E.htm), but that bill died in the Texas Senate unfortunately.
I would argue more for a scenario where houses are done on a large scale in situ. As others have mentioned, the lots and infrastructure are large parts of the cost and really, is it that much more efficient to build a cheapy framed house in a factory (and then causing traffic jams when shipping it, lol) than on site en masse? And I don't know why but manufactured homes always seem to look like crap. For lower cost we need massive projects on relatively inexpensive land. Daly City, CA comes to mind, yeah it was monotonous back in the day but it was a house with a yard and it didn't look blighted.
One usually does not own the land in a trailer park so there is no real equity and
if the owner decides to sell !