A friend emailed me yesterday about a new rent control regulation that has been passed for manufactured housing communities in unincorporated areas of Sonoma County. The day before, a maiden aunt sent me an article about Maine’s new right-of-first-refusal law for manufactured housing communities. Frank Rolfe sends articles decrying new instances of the regulation of the manufactured housing industry whenever Pavlov rings his bell.
Regulation of a market is like pushing on a balloon. Squeeze in one place, the air goes someplace else. Squeeze the second place, the air goes to a third. Squeeze and twist enough, and you have a Dachshund, a rabbit, a swan, or Mickey Mouse. Make another rabbit, and you have more rabbits.
It is the law of unintended consequences.
Last week, the town where my park in northern New York is located had a water main break. By eleven in the morning, the DPW realized that water supply was limited to a small reserve tank that would be depleted by late afternoon. They sent out an alert asking people to conserve water.
And what did people do?
They filled their bathtubs.
When the Brits put a bounty on cobras to reduce the population of venomous snakes in India, people started breeding cobras. When unlimited liability was placed on tanker operators in the wake of Exxon Valez, large oil companies began to contract tanker operations out to thinly-capitalized third parties. Abstinence-only sex education leads to ignorance, which leads to more teenaged pregnancies and STDs. Clearing trees to create agricultural land can increase salinity in water tables – which reduces agricultural land.
When you squeeze the apartment balloon on the rent control side, owners defer maintenance and developers walk away. That is why housing is such a shit-show in New York City. Owners can’t afford to keep up their buildings and nobody wants to build. Demand exceeds supply and what supply there is, is crumbling.
When you squeeze the manufactured housing balloon with rent control, owners convert their property to another use. Many of Frank’s recent posts have been about jurisdictions that have passed rent control rules for manufactured housing. When municipalities impose rent control on manufactured housing communities, owners close down their parks and convert their land to non-rent-regulated luxury apartment buildings. The people who the law is intended to protect, i.e. working people who need affordable housing, get screwed. ‘Serves you right, Sonoma County’, Frank chuckles. ‘That’s what rent control does.’
When New York passed the Nakba law in 2019, it attempted to address this problem by squeezing the balloon from two sides instead of just one.[1] First, it instituted rent control for manufactured housing communities. Second, it required that, if an owner of a manufactured housing community converts her property to a new use, she must pay each resident up to $15,000 to offset the cost of moving their home to another location. $15,000 here, $15,000 there…if you have a hundred twenty-five spaces, that adds up to real money. So – unlike the owner of a park in, say, Oregon or Colorado, if an owner of a park in New York decides that he has had enough of rent control, he can’t convert his property to another use without paying a prohibitive exit toll.
New York has now squeezed the balloon from a third side. Until today, a seller of a manufactured housing community in New York State who received an offer to buy her park was required to give the residents of the community the right to buy the park if the buyer intended to change the use of the park within five years from the date of purchase. Sellers were relieved of this obligation if they received a statement from the buyer to the effect that the buyer did not intend to change the use of the park for at least five years. Today, Governor Hochul signed a bill that removes the change-of-use limitation from this provision. As of the effective date of the new law, a seller of a manufactured housing community in New York State will be required to give the residents the right of first refusal regardless of whether the buyer will change the use the land. The preamble to the bill indicates that the legislative intent is to prevent or slow the acquisition of parks by corporate-type owners from mom-and-pops.[2]
The details of enforcement will be worked out in regulation. Regulations will be written on the head of a pin by the Division of Housing and Community Renewal (HCR). Under the statute, if a park owner receives a bona fide offer to buy his park, he is required to notify the officer of the park homeowners’ association or, if no such association exists, every homeowner in the park, by certified mail, of the offer and the terms of the offer. He is also required to notify HCR. Within sixty days, the homeowners’ association (or, if no homeowners’ association exists, more than 50% of the residents) can inform the owner of an intent to present a good-faith offer to buy the park on the same terms as the initial offer no later than a hundred forty days after receipt of notification of the first offer. If the residents do not come back with an offer within that time-period, the owner is under no further requirement to offer the park to the residents, unless the initial deal falls through and he receives an offer to buy the park for less than the price specified in the original offer, in which case he must inform the residents again. In the case of a second round of notifications, the residents have thirty days, rather than sixty, to respond.[3]
Under previous law, if a park owner didn’t like rent control, she couldn’t tear her park down to build apartments. Now, if she doesn’t like rent control, she can’t sell her park, either.
I suspect that the statute will not result in more tenant-owned communities. Most parks do not have homeowners’ associations, and most park residents, to my knowledge, have no interest in forming them. Without a homeowners’ association, it would be very difficult for residents to buy a park under the legislative rules. Speaking for myself, I am aware of organizations like ROC USA, which help residents buy their parks. When it comes time for me to sell – when I am drooling on myself in the retirement home – I will call ROC USA – but I will also list the park on Crexi. I will put a thumb on the scale in favor of the residents, but I will sell to the highest bidder. The existence of a law will not change that.
What the law will do is make it harder to sell a park in New York. A mobile home park is a big purchase. Buyers won’t want to tie up their money by making an offer that is contingent on the whims of a bunch of strangers for a hundred and forty days. Capital follows the path of least resistance. If it is easier to buy a park in, say, Ohio or Indiana than in New York, investors will put their money in Ohio or Indiana.
What does a balloon do if the air if it is squeezed in too many places?
It pops.
I am that balloon.
I do not mean to say, ‘Pity the park owners’. We will take a hit, but we will be OK. The problem is that our residents will suffer. Mobile home parks in New York need capital upgrades. I have passed on several park investments recently because there was simply too much to fix and no way to pay for it. Capital upgrades require money. Investors provide money. If we scare off investors, our residents will suffer – and they are the vulnerable people who the law is designed to protect.
Here is what well-crafted legislation, written with input from the industry as well as from resident groups, would look like:
- There would be rent regulation, but lot rents would be benchmarked to market rates. Market rate for a mobile home lot would be half the value of rent for a two-bedroom apartment in the applicable market. Increases in lot rent would be indexed to inflation. Public money would be made available to fund capital upgrades;
- A public fund would be created to provide compensation to residents of parks that close down. The fund would be financed with small monthly payments from park owners and residents;[4] and,
- Instead of a right of first refusal, residents would have a right of first offer. This would mean that they would be informed of the resources that they have to purchase their parks, both from HCR and from organizations like ROC. HCR and ROC would help residents of a park to organize themselves and source funding before the owner puts the park on the market. Once that is done, residents could take the initiative to approach the park owner to make an offer to buy the park. This offer could be reviewed and updated periodically. This would allow park residents to bid without holding up other sales and without requiring the owner to disclose her financial dealings. When the time comes to sell, no rational park owner would refuse a fair market value offer from residents.
Look for these, and other reasonable laws that advance a rational housing policy goal, in the same place where you buy insulating paint and hernia ointment.
It will be interesting to see whether the new law has unintended consequences other than unresponsive maintenance crews, potholes and overflowing septic tanks. The effective date is a hundred eighty days from today; there might be a rush for the exits in the next six months. After that, owners and investors might find new ways to monetize and exit positions. For example, a mom-and-pop who enters into a triple-net lease with a new investor would be able to exit their position without communicating the transaction with residents, because it would not be a ‘sale’, within the meaning of the statute. Owners might be able to enter into nonrecourse borrowings at 100% LTV, or deep-in-the-money options to get around the rule. We should have the tax lawyers look into it. They are a smart group, and if you give them enough resources, they will do you in. They can find a loophole in a sheet of titanium. With them, the sky’s the limit.
[1] I hesitate to use the term the Nakba law now, when things that shock the conscience are going on in the Middle East. ‘The Nakba’, or ‘the disaster’ is the term that Palestinians use to refer to the founding of the State of Israel. When I use the term, I mean The Housing Stability and Tenant Protection Act of 2019, passed by the New York State legislature in June of 2019. It is to the manufactured housing industry in New York what the Nakba is to the Palestinians, mutatis mutandis, great things to small. Events in the Middle East demand that viewers take a side, but I find that difficult to do. I don’t have a dog in the fight and I don’t know enough about the applicable history to form an opinion worth listening to. I usually find myself agreeing with the last person who spoke. If I had to choose a side, I would hold my nose and support Israel. I have a very weak tribal affiliation with the country, and I recognize that Israel is a dependable American ally. Both sides have committed atrocities, but as between the two, Israel is the marginally-less barbaric party. I hope that Palestinian readers will forgive me for using the term ‘The Nakba law’. I suspect that they have more important things to worry about. Some might appreciate the attention that it gives to their struggle. I can change it, if they object.
[2] “This would afford a fair opportunity to preserve the integrity of their park and protect against any company whose management techniques would contrast with values of the manufactured home community”. Id.
[3] A drafting glitch in Section (d)(iii) of the bill seems to indicate that, if the residents do not have a homeowners’ association, the owner is not under an obligation to inform them of a lower offer, but that is clearly not the intent of the statute.
[4] A scheme like this is currently in effect in Florida.