Monday, February 25, 2019

Advocacy group criticizes the role of private equity investment in manufactured home communities

By Amanda Maine, J.D.

Americans for Financial Reform (AFR) recently published a report decrying the increasing influence of private equity in manufactured housing. The report finds that private equity firms investing in manufactured home communities threaten low-income families and other vulnerable groups due to little incentive to invest capital into these communities and taking advantage of residents’ limited mobility to increase rents and lot fees.

Manufactured housing.
Manufactured homes (sometimes called “mobile homes” or “trailers”) are factory-built houses, many of which resemble single-family residences and are secured to concrete foundations. An important source of affordable housing, approximately 2.9 million manufactured homes in the U.S. are in communities in which the residents own or rent their homes and rent the land under their homes through the payment of lot fees. Residents also pay additional fees for shared amenities, services, and utilities.

Private equity in manufactured housing. According to AFR, private equity firms are buying up mobile home communities and raising rents and fees, exploiting the fact that many residents cannot move their homes because they are attached to a foundation or due to prohibitive moving costs. Even homeowners who are able to move their homes to escape these higher costs are constrained through zoning and regulations as to where they can go.

Another consequence of this immobility is that private equity investors have few incentives to invest in these properties, AFR stated. Residents often complain that the investors make only cosmetic changes and do not maintain roads, trees, and other common areas. “Private equity investments striving for short-term gains and a quick exit are not intended to create a sustainable housing system of community,” the report warns.

AFR also observed that private equity firms and institutional investors obtain billions of dollars from Fannie Mae to acquire manufactured home companies. In particular, the report notes that a $1 billion loan was obtained from Fannie Mae to purchase Yes! Communities, with the majority stake being held by a sovereign wealth fund and an institutional investor. The loan was characterized by Fannie Mae as “supporting affordable housing” even though it was not clear whether the mortgage terms included requirements to limit rent increases, according to the report.

Residents harmed. The report contains several anecdotes from residents who have been harmed by the actions of private equity owners. One resident noted that after the Carlyle Group purchased her community, the first rent increase was 7 to 8 percent, where previous increases had been 3 to 4 percent. She noted that Carlyle had promised to their investors a return of 7 to 8 percent. It also began charging new homeowners $2,250 a month in lot fees compared to $800 to $1,200 in nearby communities, she said.

Another resident said that after her community was sold, her rent went up from $250 for the space and $400 for the house payments to $1,330 a month just to rent the space. She added that many Spanish speakers live in her community, some of whom are undocumented, which makes them an easy target for harassment by management.

Action needed. AFR senior policy counsel Linda Jun said, “The growing reach and impact of private equity in many parts of the housing market….calls out for attention from lawmakers and regulators.” The report makes several recommendations, including calling on local and state governments to establish rent regulations to allow for reasonable and gradual rent increases; enacting good cause eviction laws to prohibit “eviction mills”; ensuring safe and healthy community maintenance through local, state, and federal government regulation; and instituting transparent, meaningful complaint procedures that residents can follow to report problems.

Local, state, and federal governments should also ensure that residents are protected from retaliation, discrimination by corporate investors, fraudulent or exploitative lease terms, and corporate community owners serving as exclusive real estate agents controlling a homeowner’s right to sell his or her home, the report advised. In addition, the report urges Fannie Mae and Freddie Mac to take steps to prevent their investments from undermining their duty to serve the manufactured housing market by requiring all purchasers, as a condition of financing, to commit to preserving affordability, prohibit unfair lease terms like rent-to-own contracts and excessive fees, and undertake regular property maintenance.