The Pappas Affordability Index is the only index of affordability for the manufactured housing industry. It's purpose is to show the relationship between median family income and the income needed to qualify for the median-priced manufactured home. It takes into account such factors as income, home and land prices both in land-lease communities and on private land or subdivisions, and interest rates.
The same calculations are used for site-built homes as a point of comparison.
An Index value of 100 indicates that the family making the median income can afford to buy the new, median-priced home. A value less than 100 indicates less purchasing power and therefore less affordability. A value greater than 100 indicates more.
The good news is that the Third Annual Pappas Affordability Index continued to find that manufactured homes “out-afforded” site-built homes by ratios of better than two-to-one for homes on private land or in subdivisions, and approximately 1.4-to-one for homes in land rental communities (see Figure 1). But within those ratios, we’ve found several interesting trends, not all of them positive for all areas of the country.
The national affordability of manufactured homes in subdivisions or on private land dropped slightly in 1998 to 238 from 240 in 1997. However, the median home price (which includes the cost of land plus infrastructure), rose a stunning 12.4 percent, to $75,094 from $66,800 in 1997. This, at a time when inflation was a mere 1.6 percent and mortgage interest rates at 6.94 percent, the lowest level in more than a generation.
To be sure, the price of site-built homes rose as well: 4.6 percent to approximately $152,200, compared with $145,500 in 1997. Even at this, though, affordability for site-builts rose from an Index of 110 to 117.
Despite falling interest rates and a 4.1 percent boost in median family income, the monthly mortgage for a manufactured home on private land or in subdivisions increased to 10.52 percent of income, compared with 10.41 percent in 1997. (Site-built homes required just over twice as much.)
The cost of land plus infrastructure was primarily responsible for the huge increase in the price of these manufactured homes. Nationally from 1985 through 1997, the price of land per home site had been increasing at a rate of approximately $500 to $1,000 annually. In 1998, it jumped to an astonishing $6,526 per home site.
However, all but $1,340 of this was due to a recalculation of the price of land as determined by the National Association of Home Builders from 20 percent of the price of a site-built home to 23.5 percent (see the assumptions, below).
Homes in land-lease communities were 43.6 percent more affordable than site-built homes on a national basis, when one took the cost of the home ($39,468) plus monthly rent ($256) into account . But while the Pappas Affordability Index for these homes dropped only two points, to 168, from its 1997 figure, it belies a deeper and more disturbing trend that is most apparent in the West and may be starting to rear its head in the South.
That is, the affordability of manufactured homes in land-lease communities in the 11 continental western states (Pappas Index of 128), is approaching that of site-built single-family homes, with an Index of 105 — a difference of just 21.9 percent. In places like Phoenix, the difference in affordability was a mere 12.2 percent in 1998.
Another way of looking at this is that the combination of home payment and monthly rent for a manufactured home in a land-lease community in the West accounted for 19.52 percent of the annual median family income. The similar payment for a site-built home (mortgage) was 23.79 percent.
While the cost of homes (plus setup) in communities increased 4.7 percent in 1998 nationally, the blame for decreasing affordability may be more squarely placed on community rent increases, which jumped into double digits — 11.3 percent. Although in some places, most notably, again, the West where median community rents actually dropped 14.2 percent, large new communities coming online offered significant home site discounts which tended to offset rent increases in more established ones.
For land-lease community developers (and, we might add, for REITs and similar investment organizations) the issue is simple but imperative: living in a land-lease community continues to fast become a lifestyle choice, not just a matter of economics. And the time is approaching when home buyers will increasingly look at the advantages of land-lease communities vs. subdivisions.
The services and amenities that are offered — and the quality of management offering them — will become increasingly important to the growth and survival of land-lease communities in the new millennium.
Regionally in 1998, the South and Midwest remained the most affordable portions of the country to call home. The Index for manufactured homes in subdivisions or on private land was at 235 and 233 respectively (compared to site-built indexes of 119 and 166).
For homes in land rental communities, the Midwest and Northeast were the most affordable locations, with Indexes of 178 and 177, respectively, although the South came in close behind 174.
The West continued to be the least affordable area for manufactured homes, with the Index at 188 for homes on private land or in a subdivision, and 128 in a land-lease community. The affordability of site-built homes in the West increased from 101 to 105.
For more information on the Pappas Affordability Index, including an extensive list of national and regional graphs and tables, please visit our web site at http://www.apolloproperties.com
