When the Wall Street Journal reported that Nebraska’s housing shortage was making it nigh on impossible for needed workers to move there, the logical reaction was: Why don’t they just plop down a few manufactured or modular homes and live there until the construction sector catches up?
It came up on Twitter, where University of Colorado at Boulder economist Miles Kimball asked, “Aren’t sudden surges in housing needs like this what mobile homes are for?”
It’s a critical question for Nebraska, which is facing an unusual quandary.
Employers there seem willing to pay more to attract workers. Average weekly earnings have grown faster in Nebraska since 2014 than in all but two states -- Delaware and Washington. Its unemployment rate is fourth-lowest in the United States over the past year -- 2.8 percent, compared with a nationwide 4.2 percent over that time -- as employers raise wages to compete for scarce workers. But workers aren't biting. Nebraska job growth ranks 40th in the country since 2014. (All rankings include the District of Columbia.)
What gives? As the Journal article noted, part of the answer has to be the lack of housing. According to Zillow Research, only two other places in the entire country (California and the District) had tighter housing inventory over the past year. Only 1 in every 184 or so housing units in the state were for sale in any given month -- that makes available homes about 1.7 times as scarce than they are in the country as a whole.
So what’s holding Nebraska back from adopting what seems like a no-brainer short-term solution?
The obvious answer was that mobile homes suffer from decades of stigma, and their use is falling nationwide even as they become safer and more loaded with amenities.
But stigma alone can’t fully explain the Nebraska situation, where the Journal reported that employers are abandoning expansion plans because they can’t find labor and the state is granting millions of dollars to local governments to help create affordable housing.
Here are the three other possible explanations:
Problem one: Land prices
The greatest asset of many Nebraska farm towns -- that they’re surrounded by what Nebraskan Ron Ratzlaff, owner of Lifetime Modular Homes in York, Neb., called the “best land in the world” -- is also a secret weakness. It hems them in. Nearby farmland is so valuable that farmers aren’t always willing to sell.
Home builders aren’t just competing with one another for land; they’re competing with the generations of crops it could otherwise produce. In Omaha, housing costs enough that builders can afford to overcome that resistance. But a margin that makes sense on a $229,250 stick-built home in the big city doesn’t work for a $48,700 entry-level mobile unit in a rural town.
Indeed, over the past decade farmers been so hellbent on wringing every last bushel of wheat or corn from the countryside that, according to the Agriculture Department, Nebraska has outstripped all but two states both in terms of growth in crop acres planted and in terms of the speed at which farmland is getting pricier. The only exceptions are its northern neighbors, the Dakotas.
Ratzlaff has been in the manufactured and modular home business for 50 years. He’s also a devoted hunter who remembers a time, not long ago, when he could head out and bag three or four pheasants in one morning. Now, it’s been at least two years since he’s even seen that many pheasants in a day -- all the marginal land where they used to nest has been plowed under to fit more crops.
If the farmers aren’t leaving enough room for a pheasant nest, then they definitely don’t have enough room to sell off edge lots for entry-level housing.
Problem two: The hidden costs of higher standards
In Nebraska, mobile-home retailers say it’s not just land costs that have lifted prices: It’s now more expensive to stick a mobile home into the ground. In December 2015, the Department of Housing and Urban Development began enforcing strict installation standards in Nebraska and other states that lacked local oversight.
Most notably, new homeowners are forced to spend an estimated $3,000 to $8,000 to lay a footing or foundation that will protect the home from being damaged when the ground underneath shifts as it freezes. The cost isn’t always covered by financing, which makes it unattainable to many buyers. On an entry-level home, installation cost could surpass the down payment.
Nebraska mobile-home retailers say the rules seem overzealous and appear especially cruel because the residents typically don’t own the plot of land into which they’re pouring thousands of dollars. Furthermore, the custom-built foundations aren’t guaranteed to fit the next home to use the lot, and they’ll have to go through the entire, costly process again when they move.
“HUD has nearly killed the manufactured homes with their stupid regulations,” Ratzlaff said.
Industry consultant Mark Conte, argued, however, that preparing the foundation properly and installing the homes in line with federal standards would pay off in the long run and would help disprove the homes’ reputation as tornado magnets.
“In my almost 30 years in the industry, I’ve never seen a manufactured home personally -- when it was properly anchored and supported -- that did blow away,” Conte said.
Problem three: Financing
Retailers often pointed to lack of financing as a key reason they couldn’t sell more homes. This has been felt acutely in Nebraska, where the out-of-state job hunters small towns hope to attract with affordable housing are often the same individuals who are finding it difficult to secure loans.
“If you’re looking at a $60,000 house, more than likely you don’t have the best job and you don’t have the best credit,” said Daryl Mouw of Swanson Homes in Lincoln, Neb. He added that even with credit scores above 700, manufactured-home purchasers often face unfavorable terms.
Ron Anderson of Lonnie’s Homes in Schuyler, Neb., said as many as 4 out of 5 potential customers -- including one who had half of the purchase price in cash as a down payment -- had failed to be approved for financing at local banks recently.
“They’re turning away customers who could easily afford a home,” Anderson said.
Most manufactured homes are financed with chattel loans that have more in common with a car loan than a traditional mortgage. They’re secured only by the home itself, not by the land underneath -- which is often leased from a mobile-home park. Like a car, the home tends to depreciate, and interest rates and down-payment requirements are higher than you’d see on a standard 30-year fixed-rate mortgage.
Lenders have been reluctant to enter the mobile-home space since the spectacular implosion of Green Tree, which in the 1990s single-handedly created a nationwide, mobile-home-specific preview of the later, greater housing crisis.
Fannie Mae and Freddie Mac may change that, with a plan to purchase tens of thousands of manufactured-home mortgages, and perhaps even chattel loans, over the coming years. The goal is to entice more lenders into the market and help fulfill the companies’ mandate to provide affordable housing, rural housing and manufactured housing.