'Gouged Unmercifully': States Consider Rent Control Amid Flood Of Private Equity Into Manufactured Housing

Manufactured homes have been a vital source of market-rate affordable housing for years, but a tidal wave of private equity entering the sector has residents and lawmakers worried about the notable increase in lot rents that followed.

Politicians in New Jersey, Pennsylvania and several other states have passed or are eyeing legislation that would limit annual lot rent increases.

That has real estate professionals and industry advocates on edge that such efforts could create roadblocks for owners looking to make capital improvements and chill a market that has grown hotter by the year.

“It goes against basic economics,” Mary Gaiski, the executive vice president of the Pennsylvania Manufactured Housing Association, said of rent control legislation under discussion in the Keystone State and neighboring New Jersey. “We need to allow the market to work how the market is supposed to work.” 

Rent for some of the nation's most economically accessible housing is on a swift rise: Lot rents in manufactured housing communities grew by 7.7% nationwide in the year leading up to the second quarter, according to a Northmarq report. That was the steepest annual increase on record and the third consecutive year rents grew 5% or more.

Increases have been especially high in Sun Belt markets like Arizona. But mobile home residents from Maine to Washington state are feeling the pinch, and some states are taking action.

Proposed legislation in New Jersey would cap manufactured home lot rent increases at 3% per year. State Assemblyman Dan Hutchison, a South Jersey Democrat who sponsored the version in the lower chamber, told Bisnow he expects it to become law in 2025, given its bipartisan support. Hutchison represents Atlantic, Camden and Gloucester counties.

“[The legislation] allows these people who are being gouged unmercifully to have some protection,” said Joe Sullivan, the executive director of the Manufactured Home Owners Association of New Jersey.

Similar legislation proposed in Pennsylvania’s House and Senate would have kept rent increases at or below the consumer price index’s growth rate. The bills first floated in 2023 weren’t passed before the end of the state’s legislative session last month, which means they would need to be reintroduced for lawmakers to formally consider them again, Gaiski said.

But legislation could easily resurface, and similar efforts have popped up in places like Michigan and Iowa.

No Longer 'A Second-Class Transaction'

Manufactured home communities, or MHCs, where tenants generally own their homes but not the land they sit on, have traditionally been run by local “mom-and-pop” owners. But that status quo has shifted dramatically in recent years, according to a report from the Private Equity Stakeholder Project.

The self-described watchdog group found that private equity firms accounted for 23% of manufactured home purchases in 2020 and 2021, up from 13% between 2017 and 2019.

More recently, the Lincoln Institute estimated that a fifth of manufactured housing communities, or about 800,000 homes, were purchased by investors between 2015 and 2023. That number is expected to grow as companies respond to demand for affordability, said James Cook, national director of brokerage at Miami-based Yale Realty & Capital Advisors.

“When I started in this business in 2007, you could count on one hand the number of institutional players,” he said earlier this year. “Today, it’s well north of 100.”

Affordable housing investors traditionally focused on value-add garden-style apartments, but those units are often no longer “truly affordable” for low-income Americans, said Marc Tropp, a financier who has helped originate loans for manufactured housing deals worth up to $25M.

As a result, institutional investors have flocked to MHCs in droves.

“It’s no longer looked at as a second-class real estate transaction,” said Tropp, who also serves as a senior managing director with Eastern Union. “People are now promoting it.”

The trend was also driven by the weak state of the retail and office markets.

“They’re looking at other areas that would be beneficial for their investments,” Gaiski said.

Mobile home shipments surged in the wake of the pandemic as people sought cheaper ownership options. An estimated 22 million Americans live in 43,000 manufactured housing communities across the U.S., according to data from the real estate investment services company Matthews. 

Those shipments have now normalized to prepandemic levels, leaving a supply-demand imbalance that offers a clear advantage for investors.

Today, Atlantic and Ocean counties each have 38 MHCs, more than anywhere else in New Jersey, according to a report from the Federal Reserve Bank of Philadelphia.

These days, mom-and-pop operators are a rarity in Jackson Township, Ocean County. That’s where Sullivan has lived since he was displaced by Hurricane Sandy in 2013.

There are nine parks in the municipality, but just one of them is owned by a mom-and-pop operator, he said.

“Most park owners, even the smaller ones, own more than one park,” Sullivan said. “You don’t have that immediate contact with your manager anymore.”

But in the wake of private equity buyouts, that’s sometimes the least of residents’ concerns, Sullivan said. He has seen everything from diminished amenities and poor maintenance to lot rents that double over a short period.

A Capital Improvements Killer?

Rent-leveling bills have already gone into effect in states like California and Oregon, but Sullivan said the proposed legislation in New Jersey would be stronger.

The West Coast bills nullified any local rent control legislation already in place. That isn't the case with the New Jersey bills, he said. If a municipality has manufactured housing rent control that is more extensive than the statewide legislation, it would remain in effect.

Hutchison’s zeal for manufactured housing rent control was partly inspired by several visits to one park in Buena Vista Township that a private equity firm recently bought. The community, home to many seniors on fixed incomes, experienced a 40% lot rent increase over four years, Hutchison said.

But when he knocked on doors in the community, the assemblyman said residents were even more concerned about an ongoing drainage issue, indicating higher rents don't always equate with better upkeep.

Hutchison recalled visiting after a rainstorm and finding that “the lying water was preventing cars from pulling out of their driveways.” The lawmaker also stopped by in the winter and saw how the standing water had iced over, creating a major safety hazard for drivers in the community.

Major rent increases that don’t come with capital improvements are generally a problem, Tropp said, but he worries that blanket rent control policies would prevent just the sort of upgrades residents need.

“It’s a grand idea, but I think in practice it’s not going to go well,” he said. “It’s going to prevent current park owners from doing necessary improvements.”

Hutchison said that the New Jersey proposals include a pathway for owners to raise rents more than 3% per year if they prove the funds are needed for vital capital improvements. The validity of these claims would be determined by the commissioner of New Jersey’s Department of Community Affairs.

The caveat didn't sway Tropp, who said government officials aren't in a good position to make decisions impacting property owners. Gaiski said she had similar concerns about the defunct rent control legislation in Pennsylvania.

That Keystone State proposal didn’t include a workaround for capital improvements like the New Jersey legislation, she said. It also wouldn’t have accounted for potential cost increases from taxes or insurance.

“Their hands are tied if other factors increase for them,” Gaiski said. “It doesn’t give them the tools they need to have a properly maintained community.”

Still, the legislation fielded meaningful bipartisan support in a deeply polarized state. Four Pennsylvania Republicans co-sponsored the state House proposal, and two more co-sponsored the accompanying Senate bill. Those ranks included Sen. Doug Mastriano, a conservative firebrand who ran for governor in 2022.

This could be because manufactured housing residents are concentrated in traditional Republican strongholds.

MHCs in rural and small urban markets account for nearly 63% of all parks in Pennsylvania, according to a 2023 report from the Philly Fed.

Those communities also skew older and whiter. People 65 and older account for 18.3% of Pennsylvania’s population and 20.7% of its MHC residents. The Keystone State is 75.7% white, but 92% of MHC residents are white.

Better Zoning Could Be The Answer

Fewer impediments to more MHCs is the way forward, according to industry leaders, who said low supply is a major driver for rising MHC lot rents nationwide. Prohibitive zoning laws are often to blame, they said.

“NIMBYism is prevalent and very strong here in Pennsylvania whenever it comes to manufactured housing,” Gaiski said, adding that zoning restrictions even extend to people building manufactured homes on their own private property in some cases.

Disdain for manufactured housing is partly due to stereotypes about its residents, Tropp said. Movies and other entertainment have traditionally portrayed people living in those communities as poor and uneducated.

But MHCs in New Jersey and Pennsylvania are wealthier than the states at large, according to the Philly Fed reports. MHCs in New Jersey have a family poverty rate of 5.9%, and the statewide average is 8.1%. In Pennsylvania, the rates are 6.6% and 7%, respectively.

MHC residents do tend to be less educated in both states, but that doesn’t mean bachelor’s degrees are uncommon.

In New Jersey, 29.7% of MHC residents graduated from college. The statewide rate is 41.5%, according to the Philly Fed. The rates in Pennsylvania are 24.2% and 32.3%, respectively.

“A lot of the people there are educated with full-time jobs and raising families,” Tropp said, adding those residents just don’t want to pay for an expensive mortgage.

“You can get a really nice home for $200K,” Tropp added.

Gaiski and Sullivan don’t see eye to eye on rent control, but they do agree that zoning laws should be amended to accommodate more manufactured housing.

The Biden administration earlier this year announced it would earmark $225M to boost the supply and affordability of manufactured housing. High housing prices were a key talking point for President-elect Donald Trump on the campaign trail, but it isn't clear if his administration will continue this initiative.

Whatever happens, those on both sides of the growing rent debate say zoning codes shouldn’t treat manufactured homes any differently than traditional stick-built residences. Gaiski said loosening density restrictions would make it easier for developers to build or expand MHCs.

“The simplest way is to pass legislation that would prohibit zoning that outlaws manufactured housing,” Sullivan said. “I think that would be a big help to the industry.”