If the desired effect is to keep mobile home park lot rents low and parks not re-developed into new uses, how can this be accomplished politically? By mandating rent control? By adding more bureaucratic hurdles? Or is there a new approach that might actually work? In this edition of the Mobile Home Park Mastery Podcast series, we’re going to review what some political paths to progress might look like, and review those that have no positive impact whatsoever. If you are tired of hearing the “fake news” regarding affordable housing assistance by the government, then this will give you some fresh perspectives on what can and can’t be done to stem the national shortage of affordable housing as far as mobile home parks are concerned.
We live in a world of politics. They're everything we see, everywhere we go people are talking about it, and there's been a political focus in recent times on the whole idea of landlords and tenants and mobile home parks, so how do we fit into that sphere, and how do these different political initiatives that have been talked about and enacted actually work or not work? Then, additionally, what could actually be done to improve the cause of affordable housing, particularly concerning mobile home parks.
This is Frank Rolfe with Mobile Home Park Mastery podcast, and we're going to review the truth behind the politics of affordable housing and mobile home parks. Let's first talk about the programs that simply don't work. Number one would obviously be rent control. Now rent control dates all the way back to World War I. That's when it really was enacted, and for those who don't know anything about rent control, I urge you to go to Wikipedia and put in rent control and read all about it.
Here's some things you'll find. All the way back in World War I, there were only five places that decided that rent control was a good idea, and those were found in California, New York, New Jersey, Maryland, and the District of Columbia. Of course, there's a new addition to that list, Oregon, which we'll talk about in a minute, but the bottom line is, for all of America, for those 50 states, very few took up the gauntlet of rent control. Probably a good thing. If you read on further in Wikipedia, you will see that 93% of all American economists say that rent control is a terrible idea, that it doesn't work.
In fact, they fault rent control in those same areas for causing the affordable housing crisis, that by having rent control you have lower quality of housing because people don't want to put any money in since they can't increase the rents with inflation, and then additionally you see almost no new housing. Nobody wants to build a house apparently in markets that have rent control. So rent control just doesn't work. A good example that's recent of why it doesn't work is in Oregon itself.
Oregon passed rent control that now effects all landlords, and it's not a very good rent control that they passed. Basically, what they set, the rent control add is seven points plus CPI, the rate of inflation. So if you assume that inflation right now is 3%, then it's saying that you can raise your housing in Oregon by 10% a year. So does it really do anyone any good? I don't think so. Very little housing in Oregon actually goes up at the rate of 10% a year, so it didn't do much good there.
But the bigger issue with rent control is the cost to enact and maintain rent control. It's been pointed out that although rent control apparently stem from people in Portland, Oregon, thinking the rents are going up too quickly, by enacting that, now every small town, every medium-sized town, even the larger cities, they are now burdened with millions and millions and millions of dollars of enforcement cost because what they have to do is they now have to go and hire lots of people to create and maintain this rent control monster that they've enacted.
You have to have people who can handle complaints. You have to have people who can figure out what the fair rents are to be. All of this bureaucratic government cost now to enact a program which doesn't have any benefit anyway. If you look at the money Oregon will spend on all of this enactment and maintenance cost of their own program, that could've been spent millions and millions of dollars on so many better things: road repair, other social programs, building housing for the homeless, things like that. Why do we put in all that money into just salaries for bureaucrats to maintain a system when 93% of all economists say it simply doesn't even work? Not really sure, so I think we could put rent control on the list of bad political ideas.
Another bad political idea floating around out there is HUD and its installation standards. I'm not talking about HUD and its looking over the manufacturing side of the industry, which started back in '76. Not that, that's worked well. They've been very good about keeping costs low, about making sure that homes are in good condition coming off the assembly line for the customer. Not faulting that at all, but they went a little haywire on installation not too long ago. They started basically getting all involved in the whole idea of setting mobile homes.
They went to many states and said, "Hey state, why don't you go ahead and let your folks go, and we will handle the installation for you?" But the problem was, the installation they wanted to do doesn't really work. It's not smart. Now, in many states, we have to put giant concrete pads under the mobile homes, or we have to put in concrete piers or runners. It costs $10,000.00 roughly to do this, but the only economic benefit to the end user, the customer, is it saves them the cost of re-leveling their home every few years periodically. It doesn't cost much to level a mobile home.
It's a couple hundred dollars, so basically people are spending $10,000.00 of their hard-earned money, these are people who really need affordable housing, they're spending this money so they can save maybe $200 every five years or so. That makes no sense economically, and everybody knows it. In fact, the rumor is that the people who came up with the program were all fired by HUD but we've seen no repealing of the project. We thought it would be repealed, but to date it hasn't happened so again another political thing that just isn't working, yet we're not taking any political steps to fix.
A third item was recently, last week I believe, Elizabeth Warren sent a letter to many large portfolio owners demanding that they send her all of their financials because she had the idea that mobile home park owners take advantage of people by raising the rents and she was going to do something about it. Now, of course, she can't do anything about it because she's not even qualified. Even though she sent these letters out on Senate letterhead, she was not, or a Congressional letterhead, she was not really authorized to do such a thing, I don't think, and clearly has absolutely no legal right to demand it, but created this false narrative that mobile home park owners are evil people.
That's really not going to help. If you're trying to solve affordable housing, calling people names, making them not want to be owners of mobile home parks, what does that do exactly? Well, let me think. Somebody got the letter, if the day after they got that letter, got an offer from Home Depot to buy their mobile home park to tear it down, I wonder which way they would go? I think they'd be more inclined to say, "Sure, Home Depot, you go ahead and tear that mobile home park down." Let's not forget that mobile home parks are a very attractive target for developers.
The very fact that everyone hates mobile home parks allows mobile home parks to basically offer something that most raw land can't, and that is the ability to get almost any permit you want to build. So, this negative narrative, again it's got to go. Now, what works then? So if most everything the government is doing to try and solve affordable housing and solve it with mobile home parks isn't working, what is there out there that actually does work? Well, the first thing is some form of grandfathering support, maybe even a federal law regarding grandfathering.
A big problem which most bureaucrats don't know is that many mobile home parks have vacant lots they can utilize but cities try and stop them by challenging their grandfathered rights saying, "You can't use that vacant lot." The end result is, a lot of lots that could have a house with a household on them, they can't go back into business so there won't be any homes on those lots because we have no protections for park owners from grandfathering, even where clearly the law is totally in favor of the park using those lots. In fact, there are no less than five state supreme court cases in which the park owner was found to have his rights violated by the city trying to block him from using any their vacant lots.
The state of Texas recently, in fact codified that in state law, that you cannot... No city is allowed to challenge the right to use those vacant lots. Why don't we go ahead and do this on a federal level? Why don't we do just what Texas did, but roll it out to the entire United States? How in the world can it be a bad thing as far as affordable housing to mandate that every vacant lot in the US can be used for just that purpose, bringing it home and creating more affordable housing? So there's one thing that could easily be done that would be very, very beneficial.
Another thing that could be done is to help entities, nonprofits, like resident-owned communities, expand their business model. Now, we've sold one of our properties to ROC in Clarks Grove, Minnesota, and I don't really see a problem with it. I'm not sure how any park owner can make the argument that it's wrong for the residents to have an equal shot at buying the park as a third party. Maybe there's some benefits to it. When you have the residents buy, for example, your diligence would be easier as the buyer because they're not trying to buy to make money. They're simply trying to make sure in diligence there's no issues with maybe environment concerns, things like that, but we found the process to be fairly simplistic.
However, they don't have very much money. ROC basically only closes roughly one park per month in the US. 12 parks a year is not going to do you a whole lot of good. There's probably a lot of people out there who own mobile home parks who would welcome groups such as ROC, other nonprofits, to bring one more person to the table who might want to buy the property. I can't really see a problem with it, and again it keeps the properties from the wrecking ball. Perhaps, I'm not convinced it keeps rents any lower than park owners. In fact, I know that in some cases, the rents have had to be raised even prior to purchase because when you put in new assumptions as being a nonprofit, they often don't have as good collections and other issues.
So I don't know if it really was going to mandate rent levels any different than private ownership but definitely there's some parks out there it might help if there was a more expanded model like that out there as a potential buyer. Probably one of the best ideas I've seen came from Keith Ellison of all people. He's a Congressman. He suggested that the solution to it all is that they give park owners tax incentives not to redevelop their mobile home parks. Effectively, I believe his law he threw out was that if you own a mobile home park and you sell it, and you don't demolish the park, then you pay, it was either very little amount or no income tax.
That's a smart idea. The amount of tax that's going to the federal government from the sale of mobile home parks let's all admit is very, very tiny. In fact, probably no one will even think of that as a line item on the budget, so if you didn't allow those park owners to be taxed if they kept the park as a mobile home park, clearly that would send a very positive message. A lot of people who were thinking, "Hm, should I redevelop it? Should I not," will probably say, "No, I don't want to redevelop it because I want to get that tax savings, so again, there's something once again that could be very, very beneficial.
Another item would be for HUD, Fannie Mae, Freddie Mac to stand more aggressively behind mobile home notes. Now, it's long been talked about the fact, the government is very, very proactive in support of the single family market. In fact, a lot of single family's growth would've never occurred if you didn't have a willing lender, Fannie Mae and Freddie Mac, who are out there giving people loans at very, very small amounts of down payment. You could do the same with mobile homes, but you'd have to securitize them aggressively. Under the Duty to Serve law, HUD and not... Sorry, HUD, but agency debt, the agency lenders out there, Fannie Mae, Freddie Mac, they're supposed to be doing this.
So, why are we not doing it now? Well, we are. There's a test this year. It's not very big dollar-wise, but these programs need to be more aggressively entertained and pushed in congress, in government, because that's exactly what America needs. There's no reason that people who have lower incomes should be deprived of the same qualities of debt that people with similar backgrounds are doing in the single family sphere. So to do this, the government needs to stand behind those home notes and promote those.
Here's what's happening now. A lot of mom and pop owners just don't want to go through the exercise of buying homes and bringing them into seller rent. They really are relying on the customer to do so, yet the customer is credit-deprived. Let's get them un-credit-deprived. Let's make it such that people can go down to those mobile home dealerships and buy their own mobile home and bring that into those parks. Larger owners aggressively buy homes and bring them in to fill vacant lots, but there's 44,000 mobile home parks in America and only roughly 4000 of those are owned by more sophisticated larger operators.
Once again, here would be a law, here would be something that really would do some good to push the cause of mobile home parks. When you sum it up, basically what's happened is, I think really everyone is well-intentioned. They would like to see affordable housing expanded. They'd like to see mobile home parks do what they do best, which is provide the lowest cost housing in the United States, certainly for any kind of detached variety, but even for prices that are far, far lower than apartments. So I think people want to promote this, they just don't know how to effectively do it.
The things that we're doing right now as a nation are simply not working. Most of the ideas I've seen tossed around out there in the media right now, those don't work either, but there are real life things that can be done, and hopefully in the months and years ahead, we'll see the nation and its leaders grasp that there is things that could be done that are very inexpensive and very simple, and hopefully we'll take all that positive energy and make that into more affordable housing being provided here in the United States. Again, this is Frank Rolfe with Mobile Home Park Mastery podcast. Hope you enjoyed this. Be back again next week.