Feb 1, 2017

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Senate Bill 98 is a win for landowners, communities and affordable housing

by | Feb 1, 2017

It’s no secret that there is a shortage of affordable housing across Colorado. While there appears to be some appetite for compromise at the state capitol this year, previous attempts to address the shortage fell short because of concerns about costs and the government’s role in “subsidizing” affordable housing. But what if there was a way that Colorado could preserve affordable-housing communities and promote home ownership while fostering wealth accumulation for its low- and moderate-income residents, at no direct costs to the taxpayers?

Manufactured homes — or, homes that are built in a factory and then transported to a plot of land —offer Coloradans an opportunity to accomplish these goals on a limited scope. Comprising roughly 4 percent of Colorado’s current housing supply, manufactured homes offer a quality, affordable-housing alternative that could help many low- and moderate-income Coloradans realize the elusive dream of home ownership. Case in point: In 2014, the average price of a new manufactured home in Colorado was a mere $65,300, compared to $345,800 for a traditional site-built home.

The vast majority of manufactured homes in Colorado are located on privately owned plots of land. However, a quarter of these homes are placed in “land-lease communities” (more commonly known as “mobile home parks”) where individuals own their homes but rent the land from a “community owner.” These communities differ little from typical suburban neighborhoods. Homeowners form associations and hold community gatherings. Many of these communities offer amenities such as playgrounds, swimming pools and activities for kids.

Unfortunately, homeowners in these communities risk being displaced (or increased rents) if the community owner decides to sell the land to an outside developer or another community owner. Because of the appeal and increased demand for Colorado real estate, land-lease communities across the state are shutting down as community landowners weigh lucrative offers from developers interested in building apartments, townhomes, traditional housing or shopping centers that could force the tenants to relocate to another community, or lose their homes altogether.

To be clear, community owners in Colorado are entitled to buy, sell, or develop their land as zoning codes allow – sometimes at the tenants’ expense. But the cost of relocating a manufactured home can range from $3,000 to $10,000. Displaced tenants — many of them low-income families or seniors —might not have enough cash to relocate. While a small handful of manufactured homeowners in these communities have been able to move into other communities, the recent displacement of hundreds of families and the disruption of affordable housing communities across Colorado warrants closer examination.

Senate Bill 98, sponsored by Sen. John Kefalas, D-Fort Collins, and Rep. Joann Ginal, D-Fort Collins, attempts to promote and incentivize the conversion of land-lease communities into resident-owned communities. A resident-owned community is formed when the residents of a land-lease community work with various nonprofits and financial institutions to obtain the financing necessary to offer a competitive price for the land. When these collaborative efforts are successful, and they often are, the community remains intact while the landowner gets a fair price for the property. Once the sale of the land to the community members has been finalized they work collaboratively through a governing body (such as a homeowner’s association) to maintain the infrastructure of the community, improve their homes and ensure that the community is a desirable place to live. While a handful of resident-owned communities already exist in Colorado today, there are no incentives for landowners to consider an offer from residents who want to buy the land.

SB 98 not only provides such incentives to community owners, it also places responsibility on the residents of these communities to organize and educate themselves on the complexities of offering a competitive offer for a piece of real estate. Under Colorado law, community owners must provide only 10 days notice to their residents if they decide to sell their land. SB 98 would extend the notice provisions to tenants to not less than 30 days and not more than one year, but only if the community owner has been notified well in advance by a homeowners’ association or cooperative of their interest to purchase the land.

If the residents fail to make their interests in acquiring the property known, the community owner must only provide 10 days notice of their intention to sell. If the land is sold from the community owner to the residents, as opposed to another private owner or developer, the community owner will receive a state tax deduction of up to 100 percent of the recognized gain from the sale — providing a strong incentive to keep the community intact.

Previous legislation to promote the creation of resident-owned communities in Colorado failed because lawmakers sympathized with community owners who felt the measures dictated what they could do with their land. SB 98 changes course from the previous similar bills by making it explicitly clear that landowners can reject an offer from residents as long as negotiations are conducted in good faith.

There’s also been some resistance on this issue because the “quality” of manufactured housing has been unfairly stigmatized. Fortunately, manufactured housing has come a long way in recent years. In fact, for over 40 years manufactured homes have been built in compliance with regulations set forth by the federal Department of Housing and Urban Development. These regulations have not only drastically improved the quality of these homes, but have also significantly reduced their production costs and made them affordable homeownership options.

Manufactured homes aren’t necessarily less expensive than site-built homes because they are “low-quality” homes, they are just built in a more efficient and cost-effective manner. These days, the only real significant difference between a manufactured and site-built home is that the former is built in a factory and the latter is built on-site.

Another upside to resident-owned communities: Studies have shown that manufactured homes become appreciating assets and a worthwhile investment when individuals own both their homes and the land. Considering that Colorado’s income inequality has been growing over time it is important now more than ever to implement policies that would foster wealth accumulation among low-income Coloradans.

Many affordable-housing initiatives try to ensure that low- and moderate-income individuals can live in rental units without paying more than 30 percent of their income on rent. We at CCLP would be remiss, however, to ignore the fact that low-income manufactured home owners have been more satisfied with the quality of their homes and pay less on housing costs than low-income renters. Plus, it has been shown that when manufactured home owners can buy their communities they thrive like never before.

CCLP hopes that SB 98 will lead to the formation of more resident-owned communities and, as a result, preserve and expand affordable-housing communities. SB 98 seeks to capitalize on these advantages and we are proud to offer our support for its passage. To learn more, click here.

Kristopher Grant

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