February 3, 2020

Manufactured homes face hurdles

With low home inventory prevalent across the country, manufactured housing is more often being discussed as part of the solution. But institutional problems with financing and permits mean tough sledding for potential buyers.

Building manufactured homes involves mass-producing home parts in a warehouse, then shipping the pieces to be assembled into a finished product at a building site. They are often referred to as “mobile” homes, though very few are actually portable once assembled.

Off-site building is not unproven technology. Ninety percent of Sweden’s homes are manufactured homes. But in the U.S., the industry has been running on fumes for decades. “Kit homes” sold by the thousands after World War II, and by the 1960s and 1970s made up about half of new single family production. But by 2018, they were only about 10% of the total, a quarter- century low.

Requiring less labor and not as vulnerable to weather, building manufactured homes is much more affordable: About $50 a square foot versus $111 for stick building.

But the widespread use of manufactured homes faces four major hurdles.

First, the up-front costs. Significant capital is needed to build and equip the production facilities needed to start a manufactured home company. These investments can become an albatross when demand is lower.

Conversely, on-site builders can buy materials and subcontract for labor virtually on a house-by-house basis, so can quickly adapt to downturns in demand.

Consumer preference is another issue. Though manufactured homes are sturdy and reliable, they carry a hard-to-shake reputation for being cheaply built.

Tighter regulation is also an issue for manufactured homes. Local zoning and subdivision covenants often relegate them to less attractive neighborhoods.

Then there is financing. Most manufactured loans are not eligible for mortgages, so are obtained with “chattel” loans. Like auto loans, they are more costly than mortgages, and finance the structure but not the land, working against the building of equity.

Some of these issues are being addressed. Fannie Mae’s MH Advantage program provides an accessible alternative financing mechanism to the chattel loan as part of their "duty to serve" commitment.

Freddie Mac calls manufactured homes “a critical source of affordable housing” and has pledged to buy an additional 6,000 manufactured home loans over the next three years, pumping $500 million into the industry.