TRAILER TRANSFORMERS

It’s becoming economically desirable to live in a trailer park

America’s growing affordability housing gap is forcing many people to rethink the traditional single family home. Trailer parks don’t have the best reputation. But what about “mobile home communities?”

With changing demographics comes demand for a different kind of lifestyle and what would have once been undesirable now comes with modern, energy-efficient homes, lawns, playgrounds and swimming pools. Many are located near the sea or lakes. These modern incarnations of trailer parks are an increasingly attractive choice for retiring baby boomers looking to extract equity from the family home yet still retain their own standalone home—and, crucially, for millennial-age young families.

According to the Manufactured Housing Institute (pdf), the average cost of a manufactured home (not including land) is $70,600. This represents two years of median income in the US. Compare this to $286,814 for a single family home (without land), which represents around eight years of median income. There’s a similar gap for rental housing.

There are three public companies in this sector: Sun Communities, Equity Lifestyle Properties, and UMH Properties. SUI and ELS who are focused more on modernized parks in high population-growth states, have significantly outperformed other real-estate investments. UMH, on the other hand, is focused on providing quality housing at the lowest cost in the energy-rich Marcellus and Utica Shale regions.

While they have all trailed the S&P500, comparing these stocks with the benchmark index solely on share appreciation doesn’t tell the whole story. All three have good dividend yields.

A core part of the attraction for investors is the relatively low capital cost required to maintain the properties at a high standard within manufactured-housing communities. And they have had some of the highest operating income growth in the real estate sector.

All three companies have grown through aggressive acquisition of owner-operated communities. This growth is slowing as owners see more opportunity as standalone operators. For the public companies, growth is through a mix of rent increases, development of existing sites, and diversification. Ryan Lumb, an analyst at Green Street Advisors, describes manufactured-housing communities as “an anomaly in commercial real estate,” referring to the scarcity of supply because new communities are difficult to develop due to NIMBY-ism and permitting requirements while demand for cheap housing is consistently high.

While the “millennial infusion hasn’t happened yet,” according to Lumb, there is a lot of experimentation going on the industry. ELS has trialled tiny homes and yurt communities while government-backed loan providers Fannie Mae and Freddie Mac are undertaking pilot programs for loan provision for manufactured homes.

A yurt on a hill in Yosemite surrounded by forest
Yosemite Yurt-ing (ELS Properties)

There is recognition that a shrinking middle class and a desire for less stuff and more experiences opens up demand for a new way of living for many Americans.

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