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JULY 2015 12 THE JOURNAL Why Significantly Higher Rents Are The Only Hope For Affordable Housing In Much Of The U.S. BY FRANK ROLFE COMMUNITY CONSULTANT Hollywood, Florida is tearing down one of its largest manufactured home communities. In its place will be Sheridan Station, an upscale apart- ment complex with one-bedroom rents starting at $1,400 per month. The manufactured home community residents are left homeless. This story is happening across America every day. Land is becoming more valuable. Alternative uses for manufactured home communities are becoming more abundant. There's only one solution if we don't want manufactured home communities to become an endangered species in most major metropolitan markets: significantly higher lot rents. Why rents need to be high Before I ever owned a manufactured home community, I obtained an A.B. in Economics from Stanford University. I didn't go on to be- come an economist, but I do have a pretty decent grasp of the general concepts. One is the con- cept of "opportunity cost". That means that every use of your time and money must be com- pared to alternative options. Breaking that down, all real estate is evaluated on a return on investment basis. When there is a manner of cre- ating a higher return with a piece of land, then the owner will have the choice of either adapting to the new use, or to selling the land to someone who will. You cannot fight the laws of econom- ics. The higher the net income of a manufactured home community, the better the odds that it will remain as the highest and best use of that land. Low rents only have a short-term benefit for ten- a nts, as they set in motion the ultimate demoli- tion of the community and the construction of a different use. I had a manufactured home com- munity on Sunshine Highway in Springfield, Missouri. The rents were below market and, as a result, I was offered more money for the land to be developed as a Harley Davidson dealership and apartment complex. Had the rents been higher – had I been more aggressive about raising them along the way – the community would probably still be there today. Instead, those residents were all given termination notices and their neighbor- hood was destroyed. That same process is going on, behind the scenes, all over the United States. And there's only one way to prevent it. Why manufactured home community rents are too low Community lot rents across America are ridiculously low. In a world where the median home price is nearly $200,000 and the average apartment rents for almost $1,200 per month, the average community lot rent is a measly $275 per month. That means that the differential be- tween the average apartment and the average lot rent, if you own your own home, is nearly $1,000 per month. How did this occur? Simple. Mom and pop owners of manufactured home communities hate to raise rents because they fear the wrath of the tenants, who were often their neighbors (as many moms and pops lived in their properties). So the rents were frozen in time for often decades. To maintain manufactured home communities as the highest and best use of the land, the rents need to be nearly twice as much. Even if doubled, the differential between apart- ment and manufactured home community living would be around $700 per month – still too high in reality. But that increase might save thousands of manufactured home communities from near- term extinction. It might have saved that latest manufactured home community in Hollywood, Florida for example. Higher rents are unpopular with tenants, but less than the alternatives Manufactured home community tenants hate rent increases. But many also hate driving the speed limit, paying bills, and eati ng vegetables. Don't stake your community's economics on your tenants' opinion. They have no idea what's best for them. They may complain about higher rents, but they'll complain even more when they get the notice that they have to move out before the wrecking ball arrives. My tenants in Spring- field loved me for having low rents. That is, until they got their lease termination notices. The U.S. is running out of time While nobody computes the statistics on how many manufactured home communities are torn down each year in the U.S., they are vanishing at a brisk pace in many markets. Remember that there are virtually no new communities built in the U.S., due to restrictive ordinances, so the supply figure never goes back up. There is only one community left in Palo Alto, California, and it is being shut down for new apartments as we speak. In St. Louis, every manufactured home community west of downtown for a distance of around ten miles has been redeveloped into an- other use. In Pittsburgh, you cannot find a re- maining community in the greater downtown area. If something is not done soon, the number of manufactured home communities being torn down for redevelopment will reach a crisis point in many cities. In others, they have already van- ished. Conclusion The fundamental laws of economics necessi- tate that the highest use of land be the highest earning. In many markets, manufactured home community lot rents are not high enough to in- sulate the tenants from future removal to make way for a higher use. Low rents equal uncertainty for residents. Raising rents in manufactured home communities may not be a popular topic, but it is the only chance at survival for hundreds of thousands of community residents. Without higher rents, manufactured home co mmunity re- development will accelerate until, in the end, there are no more. That's a bitter reality check, but the truth. Frank Rolfe has been a manufactured home community owner for almost two decades, and currently ranks as part of the 6th largest community owner in the United States, with more than 17,000 lots in 20 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top- selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.MobileHomeUniversity.com. T J