America, just about everybody agrees, is in the midst of a housing crisis. For years, construction has trailed demand, particularly for smaller units. By no coincidence, the price of housing has outpaced both general inflation and median incomes in most of the country over the past decade, making housing increasingly unaffordable in the places people want to live and work. Poorer communities have been pushed into precarious housing situations. One all too predictable consequence: the streets and parks of the nation’s cities and suburbs are filled with tents and other temporary structures for the homeless.

There are multiple reasons for the shortage of affordable housing. Restrictive zoning and other land-use regulations play a big role. Another key driver is the paucity of workers in skilled trades who are needed to build traditional, wood-frame houses on-site. The average age of carpenters and electricians, not to mention experienced contractors, is north of 50 years old. Meanwhile, peculiarities in housing finance push the focus of construction toward more expensive, labor-intensive models.

In short, the housing market is badly in need of regulatory reform as well as innovation in housing production. And “manufactured housing” – units built in factories and delivered almost ready to use – could be an important part of the solution. Here, I’ll explain what’s holding back deployment of manufactured housing, along with what must happen to dismantle the barriers.

From Recreation to Housing

Manufactured houses are often called trailers or mobile homes, though they aren’t mounted on wheels and are generally impractical to move. In any case, those terms are typically used pejoratively rather than descriptively – as in, you wouldn’t want one in your neighborhood. But the perception is badly dated. Contemporary manufactured homes are increasingly designed to blend in with “stick-built” homes – houses built from scratch on site – that represent the typical U.S. housing vernacular.

Interestingly, manufactured housing has a track record of addressing earlier housing supply crises in America. Today’s manufactured housing originated as recreational vehicles in the 1920s. But as the country faced affordable housing shortages during the Great Depression and (for very different reasons) in the years following World War II, many families turned to these trailers as primary residences. The industry got the message, designing models including clearly defined rooms and options for modern appliances such as washing machines, which were intended to stay put.

Governments at the federal, state and local levels are not unaware of the potential benefits of promoting manufactured housing this time around. But they must fight on two fronts, both reducing regulatory and cost barriers to new placement and seeking to preserve the existing supply of manufactured housing. It’s an uphill battle.

From Mobile Home to Manufactured Home

As noted above, today’s manufactured housing doesn’t resemble the mobile homes of yore. In 1976, the federal government created a new standard to address issues of safety and quality in the Mobile Home Construction and Safety Act, later amended as the Manufactured Home and Construction Safety Act. In fact, standard manufactured housing is the only form of residential lodging subject to a federal standard, overseen by the Department of Housing and Urban Development (HUD). For this reason, some refer to the houses as “HUD code” homes. And that raises a big question: with affordability front and center, how much regulation is too much?

The act’s name was updated from “mobile” to “manufactured” to better reflect that these homes are seldom moved, cannot be pulled by a vehicle and require professional installation. It is important to note that over 80 percent are never moved from their original sites – and that relocation is expensive, costing upward of $20,000.

Since the 1990s, the department has periodically upgraded the standard to improve quality and safety. The standards cover areas such as resilience to fire and wind load (think hurricanes). Environmental standards are now part of the mix, too. Recently, the Department of Energy (DOE) proposed standards with the primary objectives of increasing energy efficiency and lowering carbon emissions. This means tailoring regulation to geographic climate zones and covering areas including insulation, duct sealing, ventilation, plumbing and HVAC. Although these regulations were set to be implemented this spring, two trade associations – the Manufactured Housing Institute and the Texas Manufactured Housing Association – went to court to put a hold on the process.

The nominal goal of the trade associations is to reduce market confusion. Specifically, they seek to have the proposed DOE changes incorporated into the HUD standard, rather than having it be a stand-alone code – a process that would plainly slow implementation. But the industry’s solid front is cracking. Clayton Homes, the largest producer of manufactured homes (and a division of Berkshire Hathaway), announced it was overhauling its production facilities to meet the DOE guidelines.

In addition to federal standards, states are permitted to apply their own more stringent installation, construction and design requirements. For example, in 1996 in the aftermath of Hurricane Andrew, Florida mandated tougher survivability regulations. As a result, manufactured housing installed according to the 1996 code has generally performed as well under stress as typical site-built homes of the same vintage.

Cheaper, Better

Back up for a moment. Why do we believe manufactured housing has inherent market advantages over site-built?

The production of manufactured housing uses standardized assembly techniques in a controlled environment that allows for economies of scale. Moreover, the technology doesn’t depend on highly skilled workers to provide consistent quality. That makes for re-markable economies – on average, a savings of 40 to 50 percent per square foot compared to traditional site-built homes (excluding land, of course).

That really shouldn’t be surprising: the technology used in on-site residential construction has hardly changed over the past century. Moreover, home-construction-as-usual is highly dependent on favorable weather and the aforementioned skilled labor. Labor shortages are likely to increase going forward because of a decline in vocational training. Consider, too, that since the 2008 housing crash, numerous home builders have gone out of business.

And then there’s the issue of interest rates. Since virtually everybody needs a mortgage to buy housing, the affordability of housing depends heavily on mortgage rates. These rates were rock-bottom-low for the decade following the financial crisis – but no longer. And while higher interest rates may be somewhat offset by lower purchase prices for existing houses, the cost of capital inevitably will raise the cost of new housing.

It cannot be overemphasized, then, that something must give if we are to build our way out of the shortage. Manufactured housing could be part of the solution – as it already is for some households. Currently, some 22 million Americans live in the over 6 million units of existing manufactured housing, which constitutes the most affordable non-subsidized housing in many areas. Yet, despite improvements in quality and safety, manufactured housing’s uptake has been slow, hampered by both exclusionary land-use restrictions and a lack of competitively priced financing.

Not In My Backyard

Zoning and land-use regulations are the most galling barriers, making it difficult to locate parcels for manufactured homes and increasing the overall cost. Many localities don’t even try to put a civilized face on it. A recent paper published by the Massachusetts-based Lincoln Institute of Land Policy listed 18 examples of land-use regulations that either banned manufactured housing outright or subjected the homes to requirements not applied to site-built, single-family houses.

For example, the Manufactured Housing Institute (a trade association) found communities that require each manufactured house to sit on a lot of 1-10 acres, even where the similar acreage restrictions don’t apply to site-built homes. Other communities bar “single-wide” homes, the more modest (and more affordable) size that can be hauled by truck as a single unit. Still other local restrictions include maximum ages for manufactured dwellings, minimum square footage and specific architectural design features not required of site-built houses.

Rationalizing NIMBY

In some cases, land-use restrictions are linked to assumptions that manufactured homes are inevitably poorly made and lack aesthetic appeal – that manufactured homes will detract from the neighborhood and lower property values. However, manufactured homes can (and often do) mimic local site-built housing styles and can include garages, pitched roofs, porches, bay windows, and other exterior architectural details that allow them to blend in.

One such product is the Clayton Homes CrossMod, which aims to match site-built houses in key ways while still benefitting from the cost advantages of mass production. CrossMod homes are affixed to permanent foundations and mix manufactured housing sections with modular elements added on-site, such as porches and garages. Other manufactured housing products can be stacked to form 2-3 story homes.

Smaller-sized units are ideal for small urban “infill lots” – underutilized portions of existing house lots – and can be integrated seamlessly into neighborhoods. Oakland has been a leader in this area, successfully incorporating manufactured housing as infill for nearly 30 years.

Another myth about manufactured housing is that it is invariably a poor investment – and therefore an unreliable addition to local tax bases – because it depreciates like, say, a pleasure boat or an RV. In fact, manufactured homes generally appreciate in line with site-built homes. The Urban Institute examined data from the Federal Housing Finance Agency, concluding that while manufactured housing value is more volatile, the overall trend more or less tracks the value of site-built homes in comparable styles, conditions and locations.

A few states and localities, which have got- ten the message that in the long run NIMBY must give way, are loosening land-use rules that have created an artificial scarcity in buildable land. Notably, California, Washington State and Oregon have either eliminated or decreased both minimum lot size and single-family zoning, but they do not directly address discrimination against manufactured housing.

Meanwhile, a few states have been proactive in stopping localities from banning manufactured housing. The challenge here is that, without careful crafting of state legislation, local governments may still impose rules related to design and land use that put manufactured housing at a serious competitive disadvantage.

One complicating factor is that communities are hesitant to embrace manufactured housing in light of justified fears of the increasing likelihood of extreme climate events – hurricanes, wildfires, tornadoes, etc. HUD has already strengthened installation requirements. And it has established wind load standards tied to regional risks of climate catastrophe.

But HUD could do more. In 2019, the American Society of Civil Engineers published a study noting that while codes for residential site-built housing are regularly updated, changes to the HUD manufactured housing standard are far less frequent. They concluded that only Tier 3, the most stringent level of the HUD code, is sufficient to meet today’s climate challenges involving hurricanes and other high wind events. HUD has been working with industry to further advance sustainability in building design and installation.

It’s Not a Car, But...

It’s now clear that manufactured housing can match the quality and curb appeal of site-built, middle-income housing – at lower cost. And if the demand were greater, there’s little doubt that both economies of scale and design innovation would flourish. Advocates still face powerful local opposition linked to NIMBY. But at least the issues are now being aired in public, and the growing fear that home ownership will no longer be possible for middle-income families is changing the political calculus in favor of manufactured housing.

All that said, there’s another formidable barrier to manufactured housing: mortgages. These homes may not be mobile, but for purposes of finance they might as well be.

A manufactured home is usually purchased the same way as a car – through a dealer, who also offers financing. But lenders generally categorize manufactured housing as personal property, like vehicles, rather than as real estate. Lending collateralized by personal property, known as “chattel lending,” typically means higher interest rates than standard mortgage lending. That’s in part the case because manufactured homes are rarely sold with the land on which they sit and are thus viewed as greater default risks by lenders.

Wait, it gets worse. Unlike interest on a traditional mortgage, the interest paid on a chattel loan is not deductible from taxable income. Nor is the owner of a manufactured home afforded the strong protection against loan foreclosure and property seizure typically given to mortgage payers.

The law does allow lenders to offer regular mortgages to manufactured home buyers. But most consumers seem unaware of the option. And in any event, few buyers understand the differences between mortgages on real property and chattel loans. So even if lower-priced financing with the tax and legal benefits is available, buyers often opt for chattel loans.

There are some federal initiatives to create programs that expand the financing menu. The Federal Housing Administration already insures chattel loans (and thus makes them marketable) under a program called Title 1, which lowers the interest rate considerably. Unfortunately, the maximum loan amount is just $69,678, too low to meet most buyers’ needs. But the giant government-sponsored housing finance enterprises, Fannie Mae and Freddie Mac, are exploring ways to give manufactured home buyers a better deal.

Fannie Mae has rolled out a product called MH Advantage, which supports the private market for manufactured housing mortgages. To qualify, the home must rest on a permanent foundation and include specific architectural details, like a pitched roof and attached garage, to allow them to blend in with site-built housing. Homes that meet the product criteria are factory-labeled as “MH Advantage” homes.

Alas, there are wheels within wheels when it comes to financing manufactured homes. For one thing, obtaining a mortgage requires title insurance. And some states only permit a manufactured house to be titled as real property if it is affixed to a foundation and the home and the land are jointly owned. This effectively rules out financing in most privately owned “mobile home parks,” which rent the land to individual homeowners.

Consider, too, that lenders must be satisfied that they know the value of the collateral before they hand out mortgages. Real estate appraisers often have little experience in valuing manufactured homes, and so may be conservative in their valuations even if the manufactured home in question resembles neighboring stick-built homes. Here, too, Fanny Mae and Freddy Mac are exploring ways to repair the market failure by offering appraisal training.

Feds to the Rescue?

With the federal budget deeply in debt and astonishing sums ($200 billion annually and counting) already committed to housing, mostly in the form of tax breaks to homeowners, there’s little chance Washington will be making a large investment in manufactured housing anytime soon. But the federal government could still make a difference, leading the way on housing codes, opening the door to larger, government-insured chattel loans and clearing the way for mortgage loans on terms competitive with on-site construction. Moreover, even modest sums spent on demonstration grants and incentives to reform state and local regulation may jumpstart change.

This year Congress allocated $225 million for a new five-year program called Preservation and Reinvestment Initiative for Community Enhancement. The money will provide 50-50 matching grants to states, localities, resident-owned manufactured housing communities, tribal governments and nonprofits to replace pre-1976 code homes, upgrade infrastructure and implement disaster resilience projects. A second program has $85 million to fund “Yes in My Backyard” (YIMBY) grants to localities and states that want to amend their land-use codes to widen the sorts of housing, including manufactured homes, that are permitted.

Realistically, though, the heavy lifting will have to originate in states and localities. My own wish list:
• Eliminate outright bans on manufactured housing in all residential areas.
• Discourage housing design standards or lot-size regulations that only apply to manufactured housing.
• Make it possible to insure titles to manufactured housing, opening the door to financing on competitive terms.
• Provide technical support for local governments to assess the sustainability of existing manufactured housing communities.

One More Thing

As you might expect, most existing manufactured home clusters are located on what was then the outskirts of towns where land was cheap and had few competing uses. But typically, decades of economic growth and population pressure have pushed the margin of desirable land outward, putting owners of manufactured homes who lease their ground- pads at risk of rapidly rising rent – or eviction, so the land can be converted to other uses.

Manufactured home communities can be protected with a combination of zoning and agreements that stabilize ground rents. But localities cannot afford to stand by as land conversions – or simply unaffordable rents – eliminate moderate-income housing in the teeth of shortages. In some states, jurisdictions have the discretion to impose rent stabilization to ground-pad leases. At the very least, the minimum length of ground-pad leases can be extended to a year or more. One other promising fix: giving residents of established communities the right of first refusal of purchase when conversion to other uses is contemplated.

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Manufactured housing alone isn’t the solution to what ails housing in America. But the problems the industry faces – political, financial and social – are familiar to anyone frustrated by the failure of both government and market forces to deliver adequate housing at affordable prices. And lowering the barriers to expansion in manufactured housing may well be the most effective way to make a dent in this trillion-dollar problem. There is no time like a crisis to bring the American dream of home ownership within reach of more Americans.