Sure, the U.S. is now officially in a recession. And this one will be more serious than the 2020 Covid dress rehearsal. But mobile home park owners are not worried about the decline of the economy. It’s the same phenomenon that “dollar stores” are currently experiencing: in times of financial decline, more customers look for less expensive options. That’s why dollar store sales are up over 70% while every other form of retail is in total decline. So why do mobile home parks do better when times are bad?
Single-family home prices are ridiculous
Any discussion about the affordable housing crisis has to begin with the simple fact that single-family home prices are absolutely insane. The median home price in the U.S. currently stands at $428,700. Prices have increased by 30% since 2020 and 416% since 1980. The “American Dream” is far beyond reach for most Americans and that’s ground zero for why mobile home parks have such enormous demand. The bottom third of Americans – based on earnings – have absolutely no opportunity to ever buy a single-family home. If you earn $10 to $15 per hour, then the only option you have for a detached house is inside a mobile home park.
Apartments just broke a U.S. record at $2,000 per month on average
The median apartment rent in the U.S. was $1,827 per month in April, which was up 16.7% from the prior year, and is projected to cross the $2,000 per month barrier by the end of Q3 2022. Needless to say, that’s an impossibly high hurdle for most Americans to clear. Since the #1 competitor to mobile home parks are apartment complexes, this high rent threshold makes mobile home parks seem outrageously cheap since the average U.S. mobile home park lot rent is around $300 per month, and even when you add a mortgage for a mobile home (if one exists) it’s still roughly half of the apartment cost.
Mobile home park residents are mostly in essential industries or retired
An important lesson learned from Covid was that mobile home park residents are well insulated from layoffs, which are standard fare in a recession. That’s because mobile home park residents are engaged in mostly essential occupations, such as food production, transport, manufacturing and other basic industries. Or they’re retired and no longer have any reliance on holding a job. This combination is why mobile home parks had such extremely stable rent collection during Covid, and why they will continue to garner the most stable customer bases in American real estate.
Housing is #1 in priority of bills to be paid
When push comes to shove, Americans prioritize paying their bills based on what the negative impact is of not paying a bill. Housing is #1 on the priority list because if they don’t pay rent they get evicted, which is humiliating and dislocating to their entire lifestyle. By comparison if you don’t pay your credit card bill, all you get is a late fee and threatening letters. This is a huge driver to the stability of collections for mobile home park owners, as most Americans will do absolutely anything to maintain a roof over their heads, even if it means garnering additional part-time jobs and borrowing from family members.
Mobile home parks are limited in supply and you can’t build any more
In most American products that are in hot demand, the result is over-production that brings prices and values down. But in the case of mobile home parks, virtually all American cities have banned new construction of mobile home parks for the past 50 years. So even though the demand for parks is at an all-time high when the economy tanks, there is no ability to increase supply through new construction, so owners have zero competition and the ability to push rents and occupancy to higher levels.
Putting it all together
Mobile home parks are the classic tale of supply and demand. When the U.S. economy goes down, demand for cheaper housing triggers higher demand for mobile home park living. Meanwhile, those in mobile home parks don’t typically lose their jobs and pay their rent because they fear eviction. Throughout the process, no new mobile home parks can be constructed so the demand is through the roof. And this leads to higher rents and occupancy. Mobile home parks represent the ultimate contrarian hedge to the decline of America – just like the dollar store industry (only with lack of competition and greater stability in the customer base).
America is in a recession. Nobody knows how long it will last or how severe it will become. However, mobile home park owners could care less as a weak economy only makes their business model stronger.