Housing Costs, Shortage Are Tailwinds For Manufactured Housing

The ongoing housing shortage has ramped up demand for manufactured housing, as persistent inflation and economic uncertainty have some Americans who are nearing retirement seeking out alternative options.

“High homeownership costs and a persisting housing shortage have caused many to consider manufactured housing as a comparatively affordable option, even amid rent increases in the sector,” Marcus & Millichap analysts note in a new report on the property type, noting that favorable long-term demand drivers have bolstered fundamentals as of late. The average vacancy rate of manufactured housing rental sites in the US was 6.1 percent at the end of last year, and “the near-term limited supply change will likely aid these metrics going forward,” according to the report.

And as apartment rents also skyrocket, manufactured housing is poised for a boom. The vacancy rate has tightened below 1 percent in several metros, including Denver and San Jose. The Southeast also reports low subregional vacancy rates in the first half of the year, at 4.7 percent. This was driven largely by the Miami-Dade metro, which had “near-full occupancy” during the period.

As with nearly all housing types, rents have gone up, with some markets showing yearly increases in the double digits, mainly int he South and West. Metros within the Pacific subregion reported the highest rents on record in 2022, with rents hitting  $2,488 per unit in Santa Cruz, while the Great Plains subregion had rates as low as $339 per unit in Ames, Iowa. Half of the Texas markets surveyed by Marcus & Milichap have logged double-digit rent growth, while in California, Santa Cruz and Ventura rates both rose year-over-year by more than 15 percent.

From an investment sales perspective, deal velocity for the sector was lower year over year and year over two year in the first half of 2022, but still remains above pre-pandemic levels. Institutional capital h flocking to the space, and such players accounted for 23% of volume in the past two years, according to data from Real Capital Analytics.

“Nationally, the property type reported a rising national average sale price year-over-year, and the mean cap rate continued to compress in the second quarter,” the report notes. “Strong property type fundamentals, such as consistently low vacancy and a recent trend of rent growth, have maintained investor confidence in the segment.”

Marcus & Millichap experts are watching the Biden Housing Supply Action Plan released in May, which incentivizes states and localities to reduce regulatory barriers for affordable housing.

“This has the potential to ease tight vacancy rates and allow supply to better meet housing demand,” they say.