In all industries, you have a mixture of business plans. Some succeed, such as Apple, and some fail, such as Wang. And the mobile home park industry is no different. There are 50,000 mobile home parks in the U.S., and just about every owner has their own approach to the business. The small moms and pops we rarely read about. But the largest park owners — especially those that are publicly traded — receive constant media attention. And the problem is that these public companies, which only represent a fraction of the mobile home parks in the U.S., all have very similar business models that are floundering right now. They are giving a bad name to those of us who have successful business models, and it’s time we set the record straight.
What are the two different basic business models?
There are two basic business models in the mobile home park business: “lifestyle choice” and “affordable housing”. “Lifestyle choice” means that customers can afford other types of housing, but prefer the low-maintenance, carefree mobile home park lifestyle over other conventional forms of housing. Meanwhile, “affordable housing” means that customers have very little to spend on housing, and live in the mobile home park because they have been priced out of other conventional forms of housing. With the “lifestyle choice” model the customer is living in the mobile home park by choice, while with “affordable housing” the customer is living in the park by necessity.
Why is the “lifestyle choice” model failing right now?
The problem with the “lifestyle choice” business model is that it is a choice, and we find the premise a little sketchy. It’s hard to imagine that an individual, who has the option of buying a stick-built home or a fancy condominium, would chose a mobile home instead. Recent articles have highlighted a sudden weakness in the business model of some publicly traded mobile home park owners – as a result of the reduction in stick-built home prices and lower interest rates on mortgages. Quite frankly, we find it hard to believe that people would consider living in a mobile home park when they have the option of living in a brick home in a subdivision, regardless of subtle changes in interest rates and pricing. Another logical conclusion might just be that there are fewer and fewer buyers in these higher price points, based on the continual decline of the U.S. economy, and that this is starting to show up as a problemwith this business model.
Why does the “affordable housing” model consistently succeed ?
If you haven’t noticed, the U.S. is getting poorer every day. During the election, it was revealed that around 50% of U.S. households are on some form of government subsidy. In addition, it was revealed that around 20% of U.S. households have a total income of $20,000 per year or less. And if that’s not enough, new data is showing that 10,000 baby boomers per day are retiring from the workforce, and picking up an average social security check of $14,000 per year. This does not even include the new trend of moving from high paying jobs to minimum wage jobs, and one of the highest unemployment rates in U.S. history. In short, we have a giant, growing number of Americans who need “affordable housing” – generally defined as total payments of $500 per month or less. At this price point, the only options for housing are mobile home parks and B and C-Grade apartments. Most everyone in this demographic prefers the dignity of having a detached dwelling with a small yard and community atmosphere to the dreary existence of having a neighbor on all sides and no outdoor space. The “affordable housing” business model is booming, and has been for a decade.
How will this all end up?
The “affordable housing” business model will continue to flourish, and represents the ultimate contrarian investment to the general decline of the U.S. economy. The only way that it would be jeopardized is if the U.S. suddenly became more prosperous and, even then, it would have to be an overnight rags to riches story that outpaces the giant quantity of poor Americans. Essentially, out with the Taco Bell jobs and in with the high-paying union jobs like the old days. We think this has around a zero percent chance of actually happening. And even then, we think the swelling baby-boomers retirements would wipe out all net gains. The “lifestyle choice” business model, on the other hand, we feel will continue to suffer as it is simply a bad and broken business model.
There’s nothing wrong with having two or more business models in any industry. We think that time will prove the “affordable housing” model was the winner, and the “lifestyle choice” model was the loser. But it’s time that everyone understands that the mobile home park business has these two distinct models, and not just one.