We have long said that today’s mobile home park owner is often in the business of “bringing old properties back to life”. We frequently take huge risks, inject capital to repair or replace infrastructure, and raise rents to make economic sense of it all. And mobile home park owners are often highly criticized by the media and even city hall regarding these rent increases without any acceptance of the fact that it’s 100% justified. So it seems almost comical that nobody has bothered to spotlight the fact that the nation has a $2 trillion infrastructure repair and replacement problem and that it will forever change tax rates, water and sewer rates, and every other monthly cost for all Americans. In this edition of the Mobile Home Park Mastery podcast series, we’re going to discuss what appears to be another
There is financial hardship, risk and dedication needed to bring old worn out things back to life. Mobile Home Park ... But is America ready for it? In this week's Mobile Home Park Mastery Podcast, we're talking about the parallels between the US infrastructure crisis and Mobile Home Parks, and the lessons learned that will not be easy for most taxpayers to accept.
The first parallel is the fact that US cities are often married, much like mom and pop park owners. They just don't keep track of things, they don't really put the money back into things and often they just have a massive amount of deferred maintenance, just a bunch of cans that kick down the road. Now we all know this, we all see what's going on in many American cities. We're seeing things that very visibly are falling apart. Pavement, curbs, all kinds of things. But what happened there?
Well, it's simply that the cities decided, well gosh, it's so difficult to keep things up. Lets just not do it. And we know the reason why. It's mam and pop quantitative easing and what we call mom and pop quantitative easing. Mom and pops don't like fixing things because it requires capital and they know the capital requires higher lot rents and many mom and pops get a lot of psychological comfort by befriending the residents in their mobile home parks. And therefore they won't raise the rents even though they know they should, even though they know it's absolutely mandatory that they raise their rents in order to put the money back in to have nice roads and working water and sewer. And cities are no different. They don't want to raise taxes. When you raise taxes, voters get irate. People don't greet you friendly in a restaurant or a grocery store. So basically American politicians are just a whole lot like moms and pops. The only difference being mom and pops do their quantitative easing in lower lot rents. Cities do it in lower taxes. So what happens then when you need to put in the infrastructure?
Well, you know you should have been doing budgeting all along, but again, like moms and pops, city fathers decided they didn't want to do it, didn't want to put in the effort. Maybe they didn't want to know the answer of how much they would have to save, how much they would have to raise the taxes to make it possible to keep our American cities in good repair. So now let's look at the reality of where we're at. After all these decades of quantitative easing, as far as doing the necessary infrastructure repair, the exact same thing that mom and pop mobile home park owners have done, they estimate the tab to bring American cities back to life to be roughly around $2 trillion.
And if you read those reports that say $2 trillion, you'll see there's a whole lot of disclaimers because no one truly believes 2 trillion will foot the bill. Problem number one, no one has accurately reported the true cost to fix these many things. And problem number two, as we all know, politicians do a terrible job of managing these kinds of projects. Look at all those overruns on everything from subway tunnels to airports across America. Billions and billions of dollars squandered, billions of billions of dollars left just to get projects completed. So we say it's a $2 trillion hurdle, but is it truly? No. Probably far more. And I can tell you right now that in order to get this $2 trillion done, all these infrastructure items fixed, it's going to require all new leaders just as mobile home parks require all new owners to pull it off. So how are we going to do it as a nation?
Well, it's going to require huge tax increases. Things that no one have ever seen before as far as how much they'll have to raise the tax hurdle for Americans to pay to fix all these broken things. Putting all this paving back with nice non-potholed services and all of these bridges where all the concrete is intact, that is not going to be inexpensive. And cities right now across America have no money to do it. They're not even in the black just doing the necessary day to day operations that they're supposed to do. So we're talking probably when this monumental tax increases in American history is required to fix all this infrastructure. We always talk glowingly in the press for some reason about how great the infrastructure will be. This whole repair cost, it will employ millions of people and create millions of jobs. Well that's all great and everything, but who's paying for that exactly?
Sure. It's neat that you have all these new jobs opened up in many American cities, but who pays the tab? The taxpayers will. It's great talking about it theoretically, how much fun it will be having all these new jobs, but it may not be that much fun to actually pay the taxes on it. So now what's going to happen then? Well, just like with mobile home parks, the media is going to go crazy over all of these tax hikes. Anyone who owns a mobile home park who watches the news and the news stories on our industry knows that we have been preeminently beaten over the head with a mallet because we dare to try and bring old mobile home parks back to life. We dare to raise the rent up to levels that are the bare minimum to pay for all this infrastructure repair, not even to mention budgeting for future infrastructure repair.
We've been the target of everything from John Oliver to every goofy news channel in America running endless stories where even though we put hundreds of thousands of dollars back into parks to make them great places to live, we're ostracized for raising the rent 20, 30 $40 a month. It's just ridiculous. So coming to a theater near you will be how the media will react to all these giant tax hikes that'll be necessary to replace that over $2 trillion of American infrastructure. I have a feeling there'll be about as kind to the city fathers as they are to mobile home park owners. I think it's a very important parallel.
So then what's going to happen? Well, the cities, even after the 2 trillion has been spent and hopefully spent wisely and all these things put back into good working order, they're still going to have to raise the taxes higher further because now that they've learned their lesson, they've got to accurately forecast the capital needs of all these cities that keep everything in good working order. So you're talking a twofold tax increase. Number one, the big tax [inaudible 00:06:51] necessary to make the repairs. But number two, the additional tax needed to keep things from never getting in this position again. It's going to require a complete change in the way we think about deferred maintenance. We cannot keep kicking the can down the road. We should have never allowed it to happen so far and we certainly can't allow it to happen into the future.
So what happens when you have these substantial tax increases? Well, you know the answer. Some people will be displaced. There are people right now who can marginally survive to pay the bills on what they own. And with property tax increases, and sales tax increases and income tax increases, they won't be able to do it. They won't be able to hold things together. And again, that's very similar to what happens in mobile home parks that you bring back to life. If I take an old mobile home park where nothing works, the roads are shot, the waterlines are leaking like crazy. That thing is a total dump and I pour the money in and I raised the rents appropriately to handle that. I will have some residents in there who really couldn't even afford to live there to begin with who certainly cannot survive and pay their bills in an atmosphere of rents that are actually reasonable. Particularly, if you on top of that, require them to pay the rent every month, which mom and pops often didn't. The same will be true across America.
So as we raise these taxes and bring these old cities back to life, there will be people who can't pay the bills. And just like those in mobile home parks, the only option they're going to have is they're going to have to get on some form of social subsidy or find new housing arrangements. In the case of the cities, people who could not afford to pay the additional taxes, they will definitely be displaced from wherever they are. And once again will have to turn to the United States Government or State Government to help offset that for so form of social subsidy. Or make completely different arrangements, whether it's for their business or where they live. There's just no way around it. It's a commentary that we can't keep things so low that everyone can afford to pay, but it's just a matter of reality, that's not really a realistic goal.
And you cannot punish the bulk of people who want to have things in good working order and a nice aesthetic appearance because there's a few people who simply can't afford to pay the tab. You'll have to find other ways to work around that and that's going to be the reality for cities across America, just like it has been for mobile home park owners. So the bottom line is for those who have been deriving park owners for raising rents, pumping money back into parks, taking the risk, taking the capital investment, having the persistence to bring these old mobile home parks back the life. Well now it's your turn because very, very soon the clock will run out on American cities and the way they're being run, and to bring them back to life and to pay for all that infrastructure repair. There will be others than mobile home park owners in the hot seat facing the reality of what needs to be done.
Now, the good news is if everyone will simply look at this realistically, they will appreciate and understand what happened here. They'll never let it happen again and they'll be happy to pay those additional taxes and costs. Because they want to live in a world that's got nice streets and curbs and bridges and water and sewer treatment centers and all these other things that we as Americans take for granted. We're very spoiled here compared to the rest of the world. We have so much out there that was built by our forefathers. Great things have been accomplished by so many people, but they're frankly falling apart. But soon, hopefully as an entire nation, we will learn what mobile home park owners already know and that simply you can't bring old things back to life without additional cost. This is Frank Roth, with the Mobile Home Park Mastery Podcast Series. Hope you enjoyed this. Talk to you again next week.