Houston Manufactured Home Community Market Report

By Casey Thom - Sunstone Real Estate Advisors

Lot rent growth in Houston continues to trail growth in similar markets.  The market boasts an overall occupancy rate of 97%.  The population is projected to grow at 2.2% (162,000 residents) in 2019, roughly equal to adding a “Pasadena” worth of residents.  Additionally, Houston has returned to a robust job growth of 3.4%, that’s the highest rate amongst the 12 largest metros followed closely by Dallas (+3.3%), and Phoenix (+3.1%), and well above the national average of 1.6%.  With all these tailwinds, we would expect a market like Houston to be in line with national averages at a minimum. Instead Houston sits in the bottom 10% of many categories.

The current data we use at Sunstone contains occupancy and rental information from 91 communities in the Houston area and covers 13,406 pad sites. The median size of the community in this dataset is 130 pad sites with parks ranging between 9 and 661 sites, including 15 communities of 9-50 sites, 21 communities of 51-99 sites, 31 communities of 100-199 sites, and 24 communities with more than 200 sites.

We notice a significant difference in the rental rate charged and the lot rent as a percentage of median two-bedroom apartment rent as the communities increase in size.  We attribute this to the sophistication of the operator.  Of the 24 largest communities, 17 are owned by top 20 operators.

Houston Area MH Lot Rents

In a nationwide study of over 7,000 communities in the 220 largest MSAs, we found that Houston with an average lot rent of $362.47 ranks 155^th, well below the national average of $421. And at a 35% LR/2BR AR Houston ranks 190^th nationally with the national median running at 46%.  Considering the standard rule of thumb that residents should earn 3x rent, 97.5% of households in Houston could afford to live in a community at the current average rent.  We would expect to see lot rents 13-15% higher across all segments of the market.

Communities with a high percentage of residents making home payments should consider the affordability of the all-in home payment, lot rent, taxes, and insurance.  We compared communities nationwide, using the assumption of a resident purchasing a home with a $45,000 note balance, on a 15-year amortization, at 8% interest, with insurance rates specific to the county. The amount above and beyond lot rent came out to roughly $565 in non-coastal counties and $592 in coastal counties in addition to lot rent.  The national median percentage of all-in payments to median 2-bedroom apartment rent was 105%. 

In Houston, the average percentage of all-in payments to 2-bedroom apartment rents is 96%, a full 9% below the national median.   25 of the 91 communities exceeded the national median, but all those units were significantly below the 3-bedroom apartment rent compared to the park's unique address.  The closest park’s all-in payment (Sun’s Pine Trace) was a full 16% ($219) lower than the median 3-bedroom rent within a 1.5-mile radius.  Pine Trace is also one of the highest quality communities in the Houston MSA with an extensive amenity set including a fitness center, swimming pool, playground, sand volleyball court, and park and BBQ area.

In conclusion, with its strong population growth, job creation, and low vacancy rates, we believe that there is room for 13-15% growth in lot rents for the Houston MSA.