A Manufactured Housing Renaissance
Episode 26 – October 5, 2022
Dr. Lesli Gooch, CEO of the Manufactured Housing Institute, discusses newer options and improvements to manufactured housing and what steps policymakers need to consider for loan programs that support this option.
Kirk Willison, Arch MI’s Vice President for Government and Industry Relations:
Not since the late 1990s has the outlook for manufactured housing looked so positive. Throughout that decade, the manufactured housing [MH] industry regularly produced more than 300,000 units a year before encountering a steep decline that saw production fall to under 50,000 units in 2009. But there’s always been an inverse relationship between MH production and housing affordability. As stick-built homes become more expensive, manufactured housing becomes an increasingly attractive alternative. Add to that improved quality of construction and newfound interest in the product by policymakers and consumers and the trend lines are looking up for the industry. In 2021, annual shipments exceeded 100,000 for the first time since 2006, and they’re on a pace to top that number again this year. According to the industry, more than 22 million Americans live in 8.4 million manufactured homes. The industry recently displayed its wares on the National Mall in Washington, where it drew the attention and the praise of some of the nation’s most important housing officials.
[Video of U.S. Secretary of Housing Marcia Fudge touring a manufactured home and speaking]:
“They can rent this unit for $800 a month. I don’t know anywhere in the country — and I travel almost every week — that I’ve seen something like this.”
[Video of Skyline Champion CEO Mark Yost speaking]:
“Countless number of people that walk through here and say, ‘Oh my God, this is a manufactured home?’ And they look around, they see the amenities and they see the features, and they know that this is a real solution for the affordable housing crisis that the country’s facing right now.”
[Video of Marcia Fudge speaking]:
“They’re energy-efficient, they are move-in ready. I think it is one of the biggest solutions to one of the biggest problems we have. I’m just blown away. I want one right now.”
Joining me today for the Arch Mortgage Insurance PolicyCast is Dr. Leslie Gooch, CEO of the Manufactured Housing Institute [MHI]. She’s been in her role going on three years after serving more than five years as the industry’s chief lobbyist. Notably, Leslie has been recognized for being one of Washington’s best advocates. Prior to her time at MHI, she was not only a congressional staffer, but also a candidate for Congress from California.
Leslie, thanks for joining the Arch Mortgage Insurance PolicyCast. Let’s start with just a primer on manufactured housing. There’s a lot of misunderstanding out there about the product. You know, most people understand it comes from a factory, but so do modular and prefab houses as well, so it’s easy to be confused. So, would you walk us through the similarities and the differences?
Dr. Lesli Gooch, CEO of the Manufactured Housing Institute:
Absolutely, and thank you for having me, Kirk. So, when we are talking about manufactured housing, that’s a specific kind of home that is constructed in a factory. But what differentiates manufactured housing from those other types of homes you were talking about is that it’s actually built to a federal building code called the HUD Code. And it is the only form of residential housing that is constructed to this federal building code. The other types of homes that you talked about — modular homes, panelized construction and other things that happen in a factory — those are taken on-site and then built to the local building code, wherever that house is going to be placed. We really appreciate and enjoy our Federal building code because it does create those efficiencies that we need. In the factory, there are inspectors … so when the house is finished and transported to the site you’ve had all of those inspections done. Then, the only thing left is to place the home and make sure that it is ready for occupancy. So that’s really the big difference between manufactured modular and panelized. All of that is done in a factory. But the manufactured home definition is in federal law, and it is specifically for those houses that are built in accordance with that federal building code.
Well, thanks. MH production declined nearly 87% between 1998 and 2009, and the industry did struggle to survive. What caused that decline and how has the industry recovered?
For the industry, that decline was significant, of course, and there were a couple of contributors to that decline. Really, we had our decline before the 2007 housing decline throughout site-built [housing], but that impacted us as well. We did see that precipitous decline in manufactured homes. Since then, through the industry, production numbers are increasing and we’re really excited about that. We actually surpassed 100,000 homes. In 2021, we were at 105,000 homes, and we’ve been pretty consistent at 10% of all single-family home starts. And, of course, we want to break through that and contribute more than just that 10% number. But, you’ll see every year we’re at 9% or 10%, and we’re hoping to really have an impact, especially given the housing supply challenges that our country faces.
So Leslie, who are the typical purchasers of manufactured homes and how have they changed over time?
Okay. Yeah, thank you for asking that in terms of who is purchasing our homes. It’s really someone who is looking to have their own space. You know, when you’re thinking about an apartment, you’re sharing walls with others, and there’s somebody living right next to you. You don’t have that outdoor space. You don’t have the kind of space that you can achieve [with] a manufactured home. The other thing is that you can’t own your [apartment] home. You’re just renting. So, these are for the entry-level homebuyers a lot of times … who have incomes … where they just can’t afford the entry-level price point for a site-built home. What we’re really proud of is what we’re building is quality [construction], beautiful and it has today’s design features. It’s really what people are thinking about when they think about a home, and they can get into these homes at that affordable price point compared to what is available in the site-built market. Oftentimes, at that level, if they can [afford it at all], it’s a fixer-upper … [with] a lot of older features or [energy-] efficiency challenges and other things. So, we’re really excited about that.
We actually saw some of that on the video. And, you know, I’m looking at the photo behind you [of a manufactured home with a columned porch] and it certainly is a home that looks far different than if you looked back 30 or 40 years ago for a manufactured house. What are some of those design changes that you referenced?
Gooch: Yes. Thank you for asking that, too. Because we have as factory builders, we can produce a range of homes for a range of income levels. The house behind me is actually our new style of home where we are really trying to reach that group of individuals who are renting. They don’t want the traditional-looking home that you refer to as the traditional-looking manufactured home, but they love this compared to the site-built home fixer-upper that they might be able to find accessible. This is called a CrossModTM home. These are our homes that are really addressing that gap in the homeownership opportunity area where people are renters and they don’t have the money to buy their first home. So these are CrossMods, but what you saw in the National Mall is the range of what we offer.
We still do single-section homes that also have these kinds of features. You see, we’ve got the porch here. There are different roof pitches, but the designs [are like traditional houses] … even the placement of the windows, the light coming in the house, the efficiency features and all of that really distinguishes between the homes that are being produced today. Whether that’s a single section, a multi-section or the CrossMod behind me. It’s very different. You know, a lot of people say it’s not your grandmother’s mobile home, and that’s right. I didn’t mention this before, but when you talk about a mobile home, that’s a house that’s built before we had the federal construction code. Those are very much not manufactured homes, and that’s not what is being produced today.
And the home behind you isn’t particularly mobile.
Oh, well, no, no, that’s right. It’s an interesting term that does not distinguish our homes. But, you know, just like any other house, if you want to move somewhere else, you sell your house in place.
So, we call the show that the PolicyCast, so we have to talk policy. And there is really significant policy interest in manufactured homes today as evidenced by the elected officials and the appointed officials who visited the National Mall exhibition. The Biden Administration’s recent Housing Supply Action Plan also touts manufactured housing as a critical ingredient to boosting the stock of affordable homes. What policy changes do you think are needed so that manufactured housing can play a more significant role in combating the lack of inventory in the U.S.?
The federal government is involved in homeownership, in financing for homeownership, in a lot of different ways. You talk about Fannie Mae, Freddie Mac, FHA, USDA and VA. When you look at the level of involvement with manufactured housing, it’s very small. That level is low … What we are trying to do is to encourage the administration to look at ways that these programs can better support manufactured housing. There are programs on the books and FHA is a perfect example. There’s an FHA Title One program and an FHA Title Two program, and those are focused on manufactured homes, whether you are just financing the home itself or whether you’re taking a loan for the home and the land. The Title One program, which is where you just take the loan on the home, they had five loans in 2021. Five. [This] means that the program is nonexistent. This Administration has focused on improving and updating and reforming the Title One program to make sure that it actually is something that can serve those borrowers who are looking for homeownership through manufactured housing. It’s a prioritization issue. The programs are on the books, it’s just keeping the policies up to date. So, a perfect example of FHA is that the loan limit is so low because nobody updated it, even though Congress has told them to since 2008. Fannie Mae and Freddie Mac have a Duty to Serve manufactured housing. That’s one of the things that Congress talked about. They have a Duty to Serve manufactured housing. So, we are really encouraging Fannie Mae and Freddie Mac to take that duty seriously and increase the volume that they are doing to support homebuyers through manufactured housing.
Let’s chat a little bit about the financing of the home. Some are financed as personal properties, not unlike a car loan. And that’s, of course, called “chattel” lending, while others are financed as real property. What are some of the reasons a consumer would choose one over the other?
Well, the thing we haven’t really talked about are manufactured housing communities. These are communities, not a subdivision. The houses behind me are in a subdivision. Land-lease manufactured housing communities are a wonderful lifestyle for a lot of people, and this last year we had 51% of all the houses being produced going to land-lease communities. This is where somebody leases the land, but they own their home. It’s what we call hybrid homeownership because people can enjoy that outdoor space, they can enjoy the amenities that the community provides, the activities that the community provides. But those are personal property loans. We’re, we’re trying to move away from the term chattel and we try to call them the personal property. It’s a personal property loan.
There are also a lot of cases where someone owns land and they’re ready to place the house on that land, and they do not want to encumber that land with the loan on the house. So, there are a lot of reasons that people choose to go personal property rather than a land-home package when they’re talking about financing. We really love the innovation that manufactured housing brings. I talked to you about the range of options in terms of the homes, but this also gives consumers a choice in terms of how they want to finance. So, there are a lot of benefits that come from that personal property financing. There are also benefits for those who choose a land-home package, and we believe that the consumer should have the choice. FHA Title One is for personal property and Title Two is for land-home, and FHA should have both. We believe that Fannie and Freddie should as well, and so should VA and the USDA home program.
That actually brings me to my next question is, according to its both Duty to Serve and its Equitable Housing Finance plans, I know Freddie Mac is studying whether to purchase the personal loans. We’ll avoid the other term. Is it something then that MHI wants the GSEs to do, and can it be done safely? And by that I mean to avoid taxpayer risk?
Yes, absolutely. We actually have data that demonstrates that. We’ve been working with both Fannie Mae and Freddie Mac for years on their Duty-to-Serve plans. They both in the last iteration of their plans, they both had a chattel program that they were looking at standing up. We worked with them and provided that information. Even through the pandemic, though, we said, “Okay, we want to demonstrate the performance of these loans.” We looked at delinquencies, defaults and all of that, and we actually found that our houses were outperforming other forms of ownership and we were outperforming FHA. We’re really proud of the work that’s done in the personal property loan space. Our lenders spend a lot of time to make sure that they are serving the borrower, and we know that this can be done safely in a safe and sound way. As a matter of fact, we have had recent conversations with even more recent data that shows the performance of these loans. Performance should not be an issue. And if the Duty to Serve in manufactured housing is actually going to be met, there’s no way to meet that duty without supporting the personal property loan as well as the land-home [approach].
An ongoing controversy in homeownership, affordable homeownership and affordable housing is the prevalence of investors, a lot of them from Wall Street, are coming in and buying single-family homes and converting them from owner-occupied into rental. And we’re seeing similar things carried out with the manufactured home communities, as you mentioned. I want to know what we’re seeing in these cases, both single-family and the manufactured [homes] where new investors are coming in, making improvements, but also significantly increasing the rents or lease payments required for the people. What can be done to protect the MH homeowners and the renters?
This is definitely something that we’re watching. I do think that in some of the cases that we read about in the newspaper, there’s so much more to the story than what we see. Really, what you have are aging [communities since] we haven’t had a lot of new manufactured housing communities … In one of the latest articles, it was a 65-year-old community, and the person being interviewed said that their rent had not been increased the whole 30 years that they lived there. The challenge with that is that you have aging infrastructure and the owners and operators [have responsibility] to make sure that all of that infrastructure [works], and a lot of it’s under the ground when you’re talking about sewer and water and other things, that it is operational and that it’s safe for the residents.
In that same story, the resident complained that the water before the community was purchased by a new owner, the water coming out of the tap was brown. So right there, you know, that there are significant infrastructure challenges that whoever owned that property previously was not putting in the investment that they needed to put in. If policymakers want to preserve this very affordable form of ownership, they should be supporting new operators coming in and … fixing the infrastructure and bringing everything up to where it should be. The challenge we have is that there are people living there who are on a fixed income, and they’re used to paying significantly below market, right? And so what happens to those individuals? One of the things that we keep talking about is that almost nine years ago, MHI worked with Congress, and there was an amendment that was included in a Section Eight reform bill that said that for a person living in a land-lease community if they’re in need of a Section Eight voucher, they should be eligible. That has never been implemented in all of those years. It has not been implemented.
Final questions, Leslie, and I really appreciate the thoroughness and your candor on a lot of these discussions. Do you think we’re at a turning point for the MH industry? And if you would look ahead, let’s say five years, what do you envision manufactured housing’s impact on affordable housing to be between now and 2027?
It’s my goal that rather than people saying, “Why would you buy a manufactur[ed] home?” that they’ll say, “Why wouldn’t you buy a manufactured home?” These houses are built with factory precision. Think about how a car, a sports car or an airplane are built in that factory. We’re building houses that way as well. And what you see more and more of is people saying, “Wow, look at how beautiful these houses are and look at how well-constructed they are.” So, it’s really our goal to grow our market, move beyond 9% to 10% of new single-family home starts. And the way that we do that is we continue to produce homes with the amenities and features that consumers want, and to make sure that they’re resilient. There are some studies that show our houses are more resilient than site-built homes.
And when you talk about the impact of weather, people will hopefully seek these out as well. So we’re really hopeful for the future. We also think that there’s been a change following everything that’s been going on since the housing downturn. But if you look at the people coming of age who are looking for a home today, they’re not looking to spend the way that their parents did on a home, right? They want to have the ability for homeownership, quality homeownership with the features they want, but they don’t want to spend everything on that. Unfortunately, right now with everything going on in the market, that’s all that’s available to them. We think the affordability that we offer is key, and we do [also] see that for the new entrants into the space, they’re really excited about what they can get through manufactured housing.
The other thing we are seeing is that people who are moving out from the cities [want] their own space and they are so excited when they see what they could afford with their family in a manufactured home. So there’s a lot of consumer demand right now. We’re facing some of the same headwinds others are, of course, and we’re concerned about the economy and we’re concerned about interest rates and other things. And again, those are our headwinds, but there sure is a lot of opportunity for manufactured housing right now. I think more people need to take a look at manufactured housing. The questions you have about safety and soundness for those lenders out there — Fannie and Freddie and others — they should take a look as well. Because I really do believe the future is that we are going to be the future of homeownership in America.
Leslie, thanks very much for the time today. Appreciate it.
Thank you very much, Kirk. I appreciate you having me.
About Arch MI’s Capital Commentary
Capital Commentary newsletter reports on the public policy issues shaping the housing industry’s future. Each issue presents insights from a team led by Kirk Willison.
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PolicyCast — a video podcast series hosted by Kirk Willison — enables mortgage professionals to keep on top of the issues shaping the future of housing and the new policy initiatives under consideration in Washington, D.C., the state capitals and the financial markets.
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As VP of Government and Industry Relations for Arch MI and a mortgage finance expert with more than 25 years in government relations, Kirk speaks candidly with an array of the most influential industry and policy thought leaders in the nation.
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