Issue link: https://read.dmtmag.com/i/216825
DEVELOPMENT MARKETING Ask Eddie BY ED HICKS What happened while I was sleeping? Why are my community development costs now so high? Alan D., Orlando, FL A lot of community development costs have increased dramatically over the past 10 years during which there has been little m/h land lease community development, and in many areas, they may not necessarily be mitigated by higher rents and/or homesite prices. What are some of the reasons for these increases. Higher land costs: except for lower inherent costs of developable land in more rural areas or in areas where public water and wastewater collection services are not available, costs of land have increased dramatically. In the past areas where homesites sell at prices from $35,000 to $40,000 or homesites rented for $275 to $350 per month, the land "component" of hard costs was typically in the range of from $2,500 to $3,500 per homesite at densities of 5.5 to 7 per acre. This meant the purchase of land would range from $17,000 to $25,000 per acre of developable land. Today's much higher land costs which are ranging in some markets from $50,000 to $75,000 per acre in combination of lowered densities of from 3.5 to 4.0 per acre by local "well meaning" land planners raises the land component as high as $21,000 to $25,000 per homesite. Higher Hard Construction Costs: At densities of 5.5 to 7 per acre, typical construction costs in the past have ranged from a low of $9,500 to $18,000 depending on the location, depth of the frost line, soil conditions, and density. With inflation of an average of 3.0% per year, these costs have risen over the past 10 years by 135% to from $12,800 to $24,200, presuming the same density. As the density goes down, the cost per homesite increases dramatically and may be as high as $18,000 to $28,000 or more. Higher Utility Costs: It is not unusual in many places today for municipal hookup or tap fees to be charged anywhere from $1,500 to $5,500 per homesite or more in areas where potable water is DECEMBER 2013 22 THE JOURNAL not easily available. If the utilities must be built on-site even typical low cost systems may add another $2,500 to $5,000 for the "first phase" of development, although these costs may be lower when amortized over the entire "phased" finished development. Higher Government Imposed Fees: In many jurisdictions, where site built homes are beginning to be built once again, at prices typically starting in the $180,000 to $240,000 price range, government mandated fees and permits at $5,500 to $7,500 per home and/or homesite may be imposed without major damage to affordability, these fees when added to homesites leasing for rents as high as $450 to $550 per month is downright destructive to affordability. And, in many jurisdictions, these fees are taxed upon sale as "inclusive" of the total home costs. Higher Combined Monthly Housing Expense: It has long been a "rule of thumb" when evaluating non age-restricted m/h land lease community feasibility to compare the combination of the monthly payment on a chattel or personal property loan for the purchase of a home with the homesite rent. This combined total must be equal to or below that of area apartments of comparable size and features. Now that chattel mortgage interest rates and loan amortization, with today's higher qualifying down payments and credit scores, the monthly payments on loan used to purchase homes are higher than ever, escalating the resulting monthly housing expense. It is not so surprising therefore, that new community development has not caught up with "pent up" demand in many market areas. There are some exceptions of course: the Baaken Oil Reserves in North Dakota and Eagle Ford area of South Texas where the new deep shale oil fields has created a housing demand, m/h communities have extremely high current rents/homesite prices. With the manufactured housing industry's ability to create communities and install new homes at a relatively fast pace, at much lower prices than for site built homes in spite of recent increased costs, the housing boom has already started. With the increase in oil field developments in North Dakota, Texas and other shale oil reserve areas, comes higher wages, and employment growth, which create rapidly increasing demands for worker housing. Existing apartments, RV parks, and m/h land lease community rents near the oil field employment centers have skyrocketed, sometimes increasing to 3 to 5 times those of distant non-oil related areas. New m/h communities for these high demand housing areas may start the cycle of new community development once again. The little known and used FHA207m program, as slow it may be, when going through the approval process, with it's statutory maximum loan amount per homesite of $65,000 or more in some circumstances, is being considered by several larger developments. This program with it's 40 year, low interest, fixed rate, non-recourse financing program for qualified projects are in a position to provide relief in some of the impacted oil reserve areas. However, in other non high demand housing markets, these increases in development costs may inhibit new community development for several years to come. This is apparent from the recent purchase of existing m/h land lease communities by several of the larger income property REITs and investment companies. Without a supply of new communities, older, seasoned, well positioned communities in markets without rent controls are in a position to be "gobbled up" at a relatively fast pace, and at prices based on ever lower "capitalization rates". T J Edward "Eddie" Hicks, Principal Consultant, CRG, Inc., Lic. Mortgage Broker, Lic. Real Estate Broker, 813 300-6150, with over 45 years experience as m/h retailer, manufacturer, developer, and RE Broker assisting clients with their property development, financing, or acquisition needs. easteddie@aol.com, www.mobilehomepark.com, www.factorybuilthome.com, www.fha207m.com