What Is Manufactured Housing?

Manufactured housing (MH) can also be referred to as “modular homes” or homes separated into sections that are generally constructed in an off-site factory before being moved to where the property will be set. It is important to note that manufactured housing is personal property, not real property. This means that when someone purchases a manufactured home, the land on which the foundation is built is rented from the owner of the land. Commonly known manufactured homes include mobile homes, which have come a long way in terms of amenities and construction quality. Today, manufactured homes can be as small as 500 square feet and as large as 3,000 square feet.

The intended use behind mobile homes was they allowed people who required mobility to live flexibly. Initially, manufactured homes used to be eight feet or less in width. In the mid-1950’s however, a ten-foot model was introduced. Over time, the mobility of the units has decreased considerably due to larger models being created.

Manufactured Housing Market Outlook

Private investor groups have started acquiring manufactured homes and increasing land rent to match market rents and account for upgrades. Certain aspects of the micro and macroeconomy have given these investors opportunities and advantages in owning manufactured housing communities, namely the low nationwide housing supply and high-profit margin on ownership.

Furthermore, the COVID-19 pandemic not only impacted businesses and consumers in the manufactured housing market, but it introduced positive opportunities for investors to own or finance income-producing real estate across a range of multifamily, growing this booming industry. Currently, the three U.S. listed MH real estate investment trusts (REITs) account for roughly $35B in market value and consist of:

• Equity LifeStyle (NYSE: ELS)
• Sun Communities (NYSE: SUI)
• UMH Properties (UMH)

The manufactured housing industry produced 105,772 new homes in 2021, approximately 9% of new, single-family home starts. Affordability remains a major factor for resident satisfaction as well, the average sales price of a new manufactured home without land is $106,590. As development continues, the market value is expected to reach $21 million and grow at a rate of 3.3% by 2027.

Why the Sector is in High Demand

Manufactured housing investments are yielding average annual total returns of around 25%, which may be attributed to a decade-long period of underbuilding that intensified the affordable housing shortage throughout the U.S.

Despite high annual return rates, manufactured housing remains among the most interest-rate-sensitive property sector. 

Investors don’t appear threatened by recent and planned Fed rate hikes, and increased lending costs are unlikely to impact manufactured housing buyer activity over the second half of this year.

Benefits of Manufactured Housing

Manufactured housing can create a higher yield for investors because turnover is minimal due to how costly relocation can be. Another benefit is the unlikeliness of defaults or evictions. MH communities are recession-resilient because demand for this type of housing increases during economic downturns, as other housing options become more expensive.  Additionally, there are fewer operating costs for investors compared to apartment buildings.

MH communities are typically the most affordable non-subsidized housing option in most markets. Rents at manufactured home communities ranged from an average of $457 in the Midwest to an average of $840 in the West last year. With the recent highs in consumer prices, coupled with long-term demographic trends, increases in supply will permit and push more capital into the sector.

Key Market Trends

High occupancy rates and rising household expenses with exceeding inflation influence the MH sector and will continue to define the industry in 2022. Continued demand from new Florida residents migrating from other states, particularly the 55-and-older demographic, who discover MH communities as the most affordable option for housing.

Additionally, while manufactured-home communities are located throughout the country, nearly 60 percent of new manufactured homes were placed in southern states, including:

• Texas
• North Carolina
• Florida