A Duke Economist Confirms that Manufactured Home Community Lot Rents are Too Low. So How Do We Increase Them Without Straining Our Residents? By Frank Rolfe

Charles Becker is a Professor of Economics at Duke University. He’s also the first economist to study the manufactured home community industry. We have been working with him for years now, providing data and insight as he worked on various industry topics. His latest paper is sure to grab enormous attention. He presented it on an MHU Lecture Series Event a few days ago: https://www.mobilehomeuniversity.com/emails-and-events/interviews/charles-becker/recording.php. The problem is not with the findings (which we all know are true) but with the manner in which we all take action on them. Becker has found that manufactured home community lot rents are at least 30% to 40% under-market. Through exhaustive research, Becker has determined that manufactured home community lot rents are roughly 30% to 40% beneath the levels that they should be at. Essentially, when compared to single-family and apartment rent levels, mobile home park lot rent levels are significantly lower than what makes sense from a strictly economic standpoint. Of course, we’ve been saying that for years. Why, for example, are lot rents in Austin $1,000 per month less than apartment rents? The culprit, of course, has been the “quantitative easing” of rents by mom and pop owners, who derive their return on investment by not only financial levels but also the affection of their residents. This has kept manufactured home community lot rents from being priced by market forces and has disrupted the natural state of things. Educating residents on the necessity – and benefits – of higher rents There are three basic problems with keeping lot rents artificially low. The first is that it does not allow owners to make necessary capital expenditures. Things like road re-surfacing and tree shaping and removal cost significant capital, and low rents leave no room for these improvements. That’s one reason that there are so many communities with low rents and low quality of physical structures. The second problem is that low rents equate to low management salaries, which leads to often poor management. But the biggest problem with low rents is that it frequently coincides with community re-development, as there are many other uses for land than a manufactured home community. It’s worthy of note that probably 90% of all manufactured home communities that get re-developed are turned into apartment complexes (which have a national average rent of around $1,200 per month per unit). Finding ways to lower other costs to offset rent hikes So if higher rents are a necessity, how do we approach this situation with residents? One way is to find methods to lower the cost of other parts of our residents’ budgets, so that higher lot rent does not add to their overall monthly expenses. For example, we have been aggressively educating our residents on the benefits of buying their homes as opposed to renting, which typically saves them $100 per month. We also recently completed a bundled phone and internet deal that saves our residents over $100 per month. We’ve also been working on initiatives to lower utility costs by making homes more energy efficient. We all need to think through each line item of our residents’ budgets and brainstorm ways to lower them. Providing a better value for residents We have found that most manufactured home community residents are more concerned about “value” than simply “price”. They are not seeking the lowest rent they can find, they’re looking for the best deal. That means that they are willing to pay more for a community that’s safe, clean and attractive. To accomplish this, we all need to continually upgrade our property’s environment and bring it to a higher standard. When the New York Times writer lived in our Illinois community in 2014 and wrote his article, he found that not one resident was anything less than thrilled by the value of their housing choice. What he didn’t know is that we had raised the lot rent by around 50% over the prior half-a-decade, while at the same time re-paving the roads and cleaning up the property. It really is all about the value. Higher lot rents, going forward, are a given. They are rooted in simple economics and make complete sense. They are in the best interests of the residents, as they ensure good management, capital expenditures and the longevity of the land use. Although this is an unpopular topic with our residents and the media, the fact is that we can all take steps to lessen the blow and create a terrific value that is reflected in more than just price. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 23,000 lots in 28 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. To learn more about Frank’s views on the manufactured home community industry visit www.MobileHomeUniversity.com. This article originally appeared in the Manufactured Housing Review, subscribe for free here.