Protecting Mobile Homes as Affordable Housing

Introduction

Homeownership, long considered a staple of the American dream, has been falling.1  To put it in perspective, a higher percentage of Americans rented their homes in recent years than in 1965.2  Stricter lending standards, mounting student debt, a shortage in single family homes, and the inflation of home prices among stagnating incomes all contribute to this falling rate.3  Renting is hardly a better option: Nearly 25 percent of renters spend more than half their income on rent.4  In Los Angeles County alone, renters had to earn four times the local minimum wage to afford the median rent.5

Within this context, some say mobile homes can be the future of affordable housing.6  Mobile homes are priced as low as $45,000, while the median price of a new single-family site-built home is $323,000.7  The average price per square footage was only $49 for mobile homes compared to $107 for site-built homes in 2016.8  Given the price difference, Census figures unsurprisingly report approximately twenty-two million Americans living in mobile homes.9  They provide affordable housing without subsidies, allowing some to own homes who otherwise could not.

The effect, however, is that as such low-cost production options grow more popular, they are exposed to the same challenges as the rest of the speculative real estate market, exposing low-income residents to displacement and hardship.  In response, many jurisdictions, including Los Angeles County, have begun to explore rent control as an option.10  Rent control, despite its shortcomings, may be an essential tool to protect against the effects of real estate interest.

I. Background of Mobile Homes

During the Great Depression, trailers designed for travelling were frequently used as homes and became associated with poverty.11  Today, mobile homes are referred to as manufactured homes because they are built in factories and then transported to and installed on a site.12  Once installed on a site, most mobile homes are never moved.13  Not all mobile homes and parks are geared toward low-income communities.  For example, Paradise Cove in Malibu has mobile homes priced up to $2.5 million.14  But primarily, mobile homes provide an opportunity for homeownership to those who otherwise cannot afford it.15  In 2017, the median household income among mobile home residents was $30,000,16 nearly half the national median household income in 2016.17  Further, 19 percent of mobile home household residents are above the age of sixty,18 providing older adults an affordable means to living in community.19

II. Issues with Mobile Homes: Finance Markets

An impediment to mobile homeownership is its title of personal property, which limits its financing options.  In 2015, as many as 80 percent of new mobile homes were titled as personal property rather than real estate.20  Therefore, prospective mobile home owners use chattel loans instead of regular home loan mortgages.21  These loans are generally associated with high rates and shorter terms compared to traditional mortgages.22

Changes have been underway recently to make mobile homes easily financeable and to extend the same legal protections to mobile home owners that are available to owners of site-built homes.23  In early 2018, Fannie Mae and Freddie Mac decided to make the market more active by purchasing 30,000 mobile home loans over the span of three years.24  Additionally, pilot programs will be developed to buy chattel loans and support the financing of mobile home parks.25  Although the impact of this program is unclear, Lesli Gooch, chief lobbyist for the Manufactured Housing Institute, claims the creation of a secondary market will allow standardization for financing and help decrease interest rates.26

But the existence of better financing options leading to greater demand for manufactured homes and the securitization and secondary markets bring about similar institutional problems observed in the broader housing market, and as witnessed once before in the mobile home finance industry in the 1990s.  During this time of peak mobile home production, loose lending standards and increasing defaults on loans led to an industry collapse and bankruptcy for lenders.27  Given that many low-income and marginalized communities such as American Indian and Alaska Native home buyers particularly rely on mobile home loans,28 this new market for securitization needs sufficient protection during the loan origination process.

III.  Issues with Mobile Homes: Real Estate Speculation

Although a niche market, mobile parks are considered a great investment due to low tenant turnover, demand for affordable housing, superior returns, and lack of competition.29  About a third of mobile homes reside in manufactured home communities, and if landowners choose to increase rent, home owners may face great difficulty.30  Relocating a mobile home poses significant financial challenges, especially for the low-income residents.31

Mobile home owner advocates argue that increasing the land’s rental fees decreases the value of the mobile home drastically.  According to one article on rising rent in mobile home parks in Silicon Valley, “[r]ealtors estimate that for every $100 increase in rent, a home loses $10,000 in value.”32  In addition, there is no guarantee of appreciation or return on investment for mobile home owners,33 although according to a study of 185 mobile homes in Michigan, factors like location could influence appreciation up to a certain extent.34

Further, due to the lack of other unsubsidized affordable housing options, the only alternative is often to continue leasing the same land.  But by doing so, residents may experience 10-percent rental increases every year.35  This imbalance between park owners and mobile home residents creates a need for protection.  Accordingly, over one hundred California jurisdictions have enacted mobile home rent control ordinances to protect the approximately 750,000 mobile homes residents.36

IV. Dispute of Rent Control Ordinance at Rancho Mobile Home Park

Unsurprisingly, owners of mobile home parks consider such ordinances a damage to their investments and an unfair transfer of wealth.  This was the issue at hand in Guggenheim v. City of Goleta.37  Daniel and Susan Guggenheim bought Rancho Mobile Estates in 1997, eighteen years after mobile home rent control limits were executed.38  The Guggenheims sued the city in 2002, the year that the city incorporated and adopted Santa Barbara County’s rent control ordinance.39  While the Guggenheims owned Rancho Mobile Estates property values increased by 225 percent, but rent increases were limited under the Ordinance to 75 percent of the Consumer Price Index.40

The Ninth Circuit upheld the ordinance, declaring that the ordinance was not a taking and that Guggenheims had failed to establish “investment-backed expectations” because the rent control had existed prior to their purchase of the property.41  “Leaving the ordinance in place impairs no investment-backed expectations of the Guggenheims,” the court stated, “but nullifying it would destroy the value these tenants thought they were buying.”42  This decision, on its surface, affirmed “the important role rent control regulations play in providing stability for this vulnerable population, particularly in California’s expensive real estate market.”43  However, it also showed the likely weakness of the protection afforded to such ordinances if park owners purchased their property when such ordinances were not already in place.

Alternatively, landlords can circumvent rent control ordinances altogether.  In 2009, while the original case was being appealed to the Ninth Circuit, the city approved a development agreement to convert the rental spaces to tenant-owned spaces, with the option for tenants to purchase at discounted prices.44  Despite such offers, the tenants of the park worried about loss of equity, a point that was not included in the development agreement.45

As a result, the citizens of the mobile home park sued the city for its decision approving a development agreement with the Guggenheims.46  The California Court of Appeals, however, sided with City of Goleta by allowing the conversion of the park’s rentable spaces into condominiums, and allowing for the removal of rent control through the sale of the plots beneath the homes.47  Thus, despite a prolonged effort and some successes in preserving rent control, the property owner was able to succeed in avoiding it.  Other litigation attempts against conversion of mobile home parks have been unsuccessful as well.48

Conclusion

With the increase in financing options for mobile home purchases and the speculative investment in mobile home parks, the need for protection from displacement from these oftentimes last-resort affordable housing options are necessary.  Even as more jurisdictions such as Los Angeles County seek to implement rent control in light of the housing affordability crisis,  it is essential to also address the ease with which landowners can circumvent rent control by converting properties into separately-owned condominiums.  Perhaps it is these tensions between the interests of landlord and residents and the resulting uncertainties that have motivated some mobile home owners to think creatively and seek co-ownership of the parks on which they live.49



[1] See Daniel B. Kline, Does the American Dream No Longer Include Homeownership?, CNN: Money (July 24, 2017, 10:41 AM), http://money.cnn.com/2017/07/24/real_estate/american-dream-homeownership/index.html.

[2] See Anthony Cilluffo, Abigail Geiger & Richard Fry, More U.S. Households Are Renting Than at Any Point in 50 Years, Pew Research Ctr.: Fact Tank (July 19, 2017), https://www.pewresearch.org/fact-tank/2017/07/19/more-u-s-households-are-renting-than-at-any-point-in-50-years/.

[3] See generally Kenneth T. Rosen et al., Rosen Consulting Grp. & Fisher Ctr. for Real Estate & Urban Econ., Hurdles to Homeownership: Understanding the Barriers 4–62 (2017), https://escholarship.org/uc/item/51w4x9gr#page-1 (studying the ongoing obstacles to homeownership).

[4] Editorial, The Affordable Housing Crisis Is About to Get Worse, N.Y. Times (Feb. 2, 2018), https://www.nytimes.com/2018/02/02/opinion/affordable-housing-crisis.html.

[5] Cal. Hous. P’ship Corp., Los Angeles County’s Housing Emergency and Proposed Solutions 1 (2018), https://1p08d91kd0c03rlxhmhtydpr-wpengine.netdna-ssl.com/wp-content/uploads/2018/05/Los-Angeles-2018-HNR.pdf.

[6] See Lane Anderson, Can Mobile Homes Save Home Ownership?, Deseret News (Apr. 27, 2015, 2:00 PM), https://www.deseretnews.com/article/865627335/Can-mobile-homes-save-home-ownership.html.

[7] Jeff Andrews, Can Manufactured Housing Ease America’s Affordable Housing Crisis?, Curbed (Mar. 2, 2018, 2:15 PM), https://www.curbed.com/2018/3/2/17058882/mobile-manufactured-homes-affordable-housing-crisis.

[8] See Manufactured Hous. Inst., 2017 Manufactured Housing Facts 1, 6 (rev. ed. 2018), https://www.manufacturedhousing.org/wp-content/uploads/2017/10/2017-MHI-Quick-Facts.pdf (stating that the cost per square foot for all new mobile homes was $48.82 in 2016, while the cost per square foot for new single-family site-built homes was $107.18).

[9] Id. at 1

[10] See Rina Palta, Affordability Crisis Hits LA’s Mobile Home Parks, KPCC (Oct. 16, 2017), https://www.scpr.org/news/2017/10/16/76631/affordability-crisis-hits-las-trailer-parks/.

[11] See Tom Geoghegan, Why Do So Many Americans Live in Mobile Homes?, BBC News (Sept. 24, 2013), http://www.bbc.com/news/magazine-24135022.

[12] See Andrews, supra note 7.

[13] See Press Release, Uniform Law Commission, Uniform Manufactured Housing Act Approved (July 23, 2012), http://www.uniformlaws.org/NewsDetail.aspx?title=Uniform%20Manufactured%20Housing%20Act%20Approved.

[14] See Geoghegan, supra note 11.

[15] See Anderson, supra note 6.

[16] Manufactured Hous. Inst., supra note 8, at 1.

[17] Tanza Loudenback, Middle-Class Americans Made More Money Last Year Than Ever Before, Bus. Insider (Sept. 12, 2017, 6:11 PM), http://www.businessinsider.com/us-census-median-income-2017-9 (reporting that the national median household income in 2016 rose to $59,039).

[18] See Manufactured Hous. Inst., supra note 8, at 3.

[19] See Anderson, supra note 6; Andrews, supra note 7.

[20] Justin Pritchard, Manufactured and Mobile Home Loans, Balance (May 9, 2018), https://www.thebalance.com/borrowing-tips-for-manufactured-and-mobile-home-loans-4148186.

[21] See Andrews, supra note 7.

[22] Id.

[23] See, e.g., Press Release, Uniform Law Commission, supra note 13.

[24] See Andrews, supra note 7.

[25] Id.

[26] Id.

[27] Id.

[28] See Kevin Johnson & Richard M. Todd, Manufactured-Home Lending to American Indians in Indian Country Remains Highly Concentrated, Ctr. for Indian Country Dev.: CICD Blog (Dec. 1, 2017), https://www.minneapolisfed.org/indiancountry/research-and-articles/cicd-blog/the-market-for-manufactured-home-loans-to-american-indian-and-alaska-native-borrowers-in-indian-country-remains-highly-concentrated.

[29] See, e.g., Brandon Turner, 7 Powerful Benefits to Mobile Home Park Investing, Forbes (July 11, 2017, 10:54 AM), forbes.com/sites/brandonturner/2017/07/11/7-powerful-benefits-to-mobile-home-park-investing/#3dd219126e92.

[30] Manufactured Hous. Inst., supra note 8, at 4.

[31] See, e.g., Mimi Kirk, The Homes Are Mobile, but Many Residents Are Stuck, Atlantic (Oct. 31, 2017), theatlantic.com/business/archive/2017/10/mobile-homes-american-dream/544337/.

[32] Tracey Lien, In Silicon Valley, Even Mobile Homes Are Getting Too Pricey for Longtime Residents, L.A. Times (May 4, 2017, 3:00 AM), http://www.latimes.com/business/technology/la-fi-tn-silicon-valley-mobile-homes-20170504-htmlstory.html.

[33] Anderson, supra note 6.

[34] Crystal Adkins, Buying a Mobile Home: They Can and Do Appreciate!, Mobile Home Living (Dec. 8, 2013), https://mobilehomeliving.org/manufactured-homes-can-and-do-appreciate/.

[35] Rupert Neate, America's Trailer Parks: The Residents May Be Poor but the Owners Are Getting Rich, Guardian (May 3, 2015), https://www.theguardian.com/lifeandstyle/2015/may/03/owning-trailer-parks-mobile-home-university-investment.

[36] Eva Spiegel, Challenges to Local Control Emerge in Mobile-Home Park Ordinance Trends, Western City (Mar. 2010), http://www.westerncity.com/Western-City/March-2010/Challenges-to-Local-Control-Emerge-in-Mobile-Home-Park-Ordinance-Trends/.

[37] 638 F.3d 1111 (9th Cir. 2010) (en banc), cert. denied, 563 U.S. 988 (2011).

[38] Guggenheim v. City of Goleta, 638 F.3d 1111, 1113–15 (9th Cir. 2010) (en banc), cert. denied, 563 U.S. 988 (2011).

[39] Id. at 1115.

[40] Id. at 1126.

[41] Id. at 1121.

[42] Id. at 1122

[43] parkguy1, Guggenheim vs. City of Goleta, Inv. Prop Grp. (Dec. 24, 2010). http://www.parkguy.com/guggenheim-vs-city-of-goleta.

[44] See Sonia Fernandez, Goleta Planners Back Development Agreement for Mobile Home Park, Noozhawk (Jan. 13, 2009, 1:16 AM), https://www.noozhawk.com/article/0112_goleta_planners_back_development_agreement_for_mobile_home_park.

[45] Id.

[46] See Sonia Fernandez, Goleta Council Green Lights Mobile Home Development Deal, Noozhawk (Feb 18, 2009, 4:16 AM), https://www.noozhawk.com/article/0217_goleta_council_green_lights_mobile_home_development_deal; Matt Kettman, Goleta Mobile Home Conversion Okayed, Santa Barbara Indep. (Mar. 13, 2013), https://www.independent.com/news/2013/mar/13/goleta-mobile-home-conversion-okayed/.

[47] Monarch Country Mobilehome Owners Ass’n v. City of Goleta, No. B231244, 2013 WL 841685, at *1 (Cal. Ct. App. Mar. 7, 2013); see also Kettman, supra note 46.

[48]  See, e.g., Chino MHC, LP v. City of Chino, 210 Cal. App. 4th 1049, 1069, 1074–75 (2012), (holding that the city abused its discretion to deny the plaintiff’s conversion application because the survey results do not show that the conversion was a sham), cert. denied, 2013 Cal. LEXIS 1508, at *1 (2013).

[49] See Dan Gorenstein, Home Sweet Mobile Home: Co-Ops Deliver Ownership, NPR: All Things Considered (May 2, 2012, 5:41 PM), https://www.npr.org/2012/05/02/151863518/home-sweet-mobile-home-co-ops-deliver-ownership; see also Resident Owned Communities USA, https://rocusa.org/.

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