New York State’s Rent Regulation — Half a Lifeboat

The following was written shortly after the New York State legislature passed rent regulation in June, 2019. A truncated version was published as an op-ed in the Rochester Democrat and Chronicle on June 28, 2019.

Buried at the end of the new rent control bill is legislation that changes the way mobile home parks are run in New York State. The law addresses one half of a terrible problem well. Like most half-way measures, this will get the state’s poorest and most vulnerable tenants about as far as half a lifeboat.

The root of the problem is that mobile home parks are different from other types of residential real estate. They are not like apartments, single family homes, brownstones, strip malls or self-storage units. Mobile home parks are a hybrid. Most mobile home park tenants own their own home, and they rent the land on which the home is installed (i.e., they enter into a “land lease”). Park owners are responsible for maintaining infrastructure (roads, water, septic, drainage). Tenants are responsible for repairing and maintaining their homes, and for cleaning and mowing their lots.

The hybrid nature of mobile home park tenancy distinguishes life in a mobile home park from life in an apartment in two ways:

• Mobile home park tenants cannot up and leave. Mobile home park tenants are, generally, stuck in their homes. If lot rents go up, or if the quality of life in a park goes down, it is more difficult for a mobile home park tenant to vote with his or her feet than it is for residents of an apartment building; and,
• A well-run mobile home park is a good place to live. This is the flip side of the foregoing. Although critics deride the land-lease model, the permanence of mobile home park tenancy makes for a good living environment if it is done right. This is because it encourages pride of ownership. Well-maintained homes in my parks have manicured lawns, vegetable gardens, porches, and flagstone or gravel footpaths. One tenant makes flower-shaped planters out of old tires, which she carves up and paints. Unlike apartment tenants, each family in a mobile home park has their own living structure. This means that there is nobody shouting, or playing music, or vacuuming the floor immediately above, below or adjacent to you. You have a hook-up for a washer and dryer in your home. You can park in front of your front door. You have the use of a small yard outside your home. If the park is well run, the yard is a pleasant place to sit and sip beer or lemonade, watch your kids play, or plant tomatoes.

If the park is well-run. There’s the rub. The new law makes it harder for park owners to run their parks well. That is because the two biggest threats to mobile home park tenants are crumbling infrastructure and tenants who do not, or cannot, protect their neighbors’ property. The new law makes it harder to deal with both of these problems.

Doesn’t that defeat the purpose of a tenant-protection law? As always, the poorest and most vulnerable people will bear the brunt of the legislature’s mistake.

Here’s some more background:

Mobile homes are not mobile. The correct term is, actually, “Manufactured home”. Mobile homes are built off-site, delivered and installed. It costs about $3,500 to move, block, level and tie down a mobile home. That is more than most mobile home park tenants can afford. So — once a home is installed on a lot, it will likely stay there.

Market rate lot rents are very low. When I price lot rents, I try to charge a little less than half what a comparable two-bedroom apartment goes for. That is because, when I rent a lot, I only provide the land. The tenant needs to provide the structure, either by buying the home, or by renting it. I keep lot rent slightly below half market because my job is to provide clean, safe and affordable housing. To do that, I need to keep it affordable.

For example — the market rate for a 2 bedroom apartment in the town near one of my parks is $750-$900 per month. Lot rents should be $350-$400 in that park. A tenant who puts a 3 bedroom two bath singlewide on that lot will probably pay about $675-$750 total lot-rent-and-monthly-cost-of-home in exchange for much more than she would get from a comparable apartment.

Lot rents in many parks are below market. When I bought that park from a local father-son team, lot rents were $265 per month. Why did they keep lot rents so low? I don’t know. They just did. Comparable parks in the area were charging $400 per lot. That $265 needed to be increased, to pay for capital improvements and deferred maintenance, and to service my debt.

Mobile home parks are a hot asset class now. Everyone and his brother wants to buy a mobile home park these days. Interest rates are low, and everyone is chasing yield. Down- and out of state investors have been buying up parks and bumping up rents to market rates.

Most mobile home park tenants are great tenants. It is really hard to make a living in rural parts of the state if you were not born into middle-class privilege. Housing costs are through the roof. Mobile home parks provide the best source of clean, safe and affordable housing in much of New York State. The vast majority of my tenants are bus drivers, prison guards, nurses, IT techs, painters, plumbers and the like who value their property and are considerate of their neighbors. My job is to provide clean, safe and affordable housing to these people. They are to whom I am answerable.

Mobile homes are not mobile. Sorry — did I say that already? What this means is that, when a tenant buys a home in one of my parks, that tenant and I are joined at the hip, whether we like it or not. He or she depends on me to provide a good environment for his home and for his family. I depend on him or her to do the same for his neighbors. Chances are he can’t move his home. This means that my relationship with him is more permanent than that between a landlord and an apartment tenant.

If things go south, my only recourse is eviction. Sad but true — some tenants do not work out. Here is a non-exclusive list of common lease violations: Failure to pay lot rent; failure to mow lawn; failure to pick up garbage; failure to repair skirting, siding, or steps; loud music at odd hours; dangerous-breed dogs; unregistered cars; leaky oil tanks. Here is an exhaustive list of my remedies in any one of these cases: Eviction.

Nobody likes evictions. They are an ugly and time-consuming process, and they are shattering for the evictees. However — to herd cats, you need a stick, as well as a hunk of tuna fish. Unfortunately, the law only gives me one stick, and no tuna fish. You cannot make threats that you will not follow through on. Evictions are as much a fact of life as are bad tenants.

My good tenants rely on me to evict the trouble-makers Remember when I said that I am joined at the hip with my owner-tenants? That is not the whole story. In addition to being joined at the hip with me, all of my tenants are joined at the hip with each other. That is because they live together, and they depend on each other to obey the social contract. Their home is their biggest asset, and they cannot pull it out of the park. If their neighbor starts, say, breeding pitbulls, or letting their porch rot, their net worth will take a hit. It is my responsibility to make sure that that does not happen.

Mobile homes are not mobile. Sorry to come back to this again. Because mobile homes are not movable, evictions in a mobile home park are very different from evictions in an apartment building. When the sheriff executes the warrant of eviction, he only removes the tenant who has been evicted; he does not remove the home. The park owner is required to move the home to a different lot, seal the door of the home with a padlock and a hasp, and to grant the former tenant access at certain times to collect his or her belongings.

One of four things will happen to a home once an owner-tenant has been evicted. If the tenant can afford it, he or she will move the home. That only happens in exceptional cases. The tenant might sell the home to a third party, or the tenant might sell the home to the park. If the tenant simply bugs out without selling the home or giving a forwarding address, the park will institute an abandoned-property proceeding, at the end of which the park can take possession of the home.

As politicians and late-night comedians have noted, the foregoing creates opportunities for abuse. Since owner-tenants are a captive market, unscrupulous park owners can (and do) jack up lot rents too fast and too far, and some park owners have been known to abuse the rent-to-own process. The law was changed to address this problem.

The solution proposed by the new law is increased regulation of park owners’ behavior. A cap on rent increases; limitations on evictions; limitations on security deposits and late fees, and limitations on rent-to-own contracts, inter alia.

The problem is — predatory park owners are not the only threat to mobile home park residents. They are, at best, a distant third. Mobile home park residents are also threatened by decaying infrastructure, and by neighbors who cannot maintain their property. One tenant who is having trouble making rent, or fixing her skirting, or getting rid of trash, or one abandoned home that can not be filled, removed, or replaced, can make an entire park go downhill.

Regulating park owner behavior will not help with these issues. The only way to solve these problems is to backstop the government control engendered by the new legislation with government support.

Here’s what I mean:

• Grants for Tenants Many tenants are evicted for some kind of failure to pay. A single mother might have an unexpected medical issue. An old lady might not be unable to mow her own lawn or fix her skirting, and she may not be able to afford to pay someone to do that. A family of five might have unexpected vehicle problems. A couple might get divorced, and the wife might have trouble getting increased SSI payments.

In all of these cases, my only remedy is to evict the tenants for failure to pay, or for failure to follow park rules. Anything else is a dereliction of my duty to the other tenants. This sucks, and the new law does nothing to fix it. We all want to help mobile home park tenants stay in their homes. I want a full park; my tenants don’t want to sleep in their cars. New legislation should include grants to tenants to help them get back on their feet after an unexpected run of bad luck, and it should include on-going supplementary grants to tenants who need housing support. These funds should be made available quickly, and should be available to people who have incomplete personal financial records.

Tenant grants will not only benefit the tenants who receive them. They will also benefit the neighbors of these tenants. The old lady will be able to get her lawn mowed and her skirting fixed. The single mother will be able to fix her porch. The family of five will be able to register their truck. The value of the homes sitting next to these people will increase accordingly. Each dollar paid to a tenant struggling to comply with park rules will add to the net worth of everyone in the park.

• Tenant Financing Since the Dodd Frank Act extended certain provisions of the Truth in Lending Act to mobile home park owners, many park owners have changed from extending purchase-money credit to tenants looking to buy park-owned homes to selling homes under “rent-to-own” contracts. The new legislation requires that rent-to-own contracts be offered at fair market value; that the park owner disgorge any rent-to-own payments plus liquidated damages if the tenant is evicted prior to maturity; and the park owner comply with certain disclosure requirements.

The net result of this rule is that park owners will not offer rent-to-own contracts any more. It is simply too dangerous and burdensome to do so.

The problem is — tenants need financing. Few mobile home park tenants can buy their homes for cash. Many cannot obtain bank loans, because they have scratch-and-dent credit. Banks will not lend money against homes located in New York State manufactured prior to 1995. Post Dodd Frank, park owners cannot (or will not) issue mortgages. Without a public support backstop, the law cuts vulnerable tenants off from the biggest driver of financial security, i.e. home ownership.

The solution is for the state to offer mobile home park tenants financing for purchases of their homes on terms that work for the tenants and for the park owners. A program was launched last year by the State of New York Mortgage Agency (SONYMA) to help mobile home park tenants purchase their homes on terms similar to those available to buyers of stick-built houses. This is a step in the right direction. In the absence of other financing products for mobile home park tenants, the program should be expanded in a form that encourages buy-in from park owners.

• Grants or No-Cost Loans for Infrastructure Most parks were developed in the 1960s, with 1960s-era building materials. Many water mains are made of galvanized steel, and sewer lines are made of cardboard Orangeburg pipe. Galvanized steel rusts, and Orangeburg pipe collapses; replacements cost real money. Building codes have been updated since most parks were developed. Time was when you could put a mobile home on a gravel pad. Now, a home needs to sit either on an insulated 6” cement slab surrounded by a 1’x’1 haunch, or on concrete cylinders that extend four feet into the ground. That means it costs me about $9,000 of prep work to fill a lot — before I buy, deliver, install, or rehab a home to fill the lot.

We want to fill our lots, and people who need affordable housing want to move into our parks. The new law limits our ability to recoup capital costs through rent increases. In its current form, the law creates a disincentive for us to make affordable housing available to the people who need it most.

The answer is for the state to provide grants or no-cost loans to park owners to upgrade empty lots and infrastructure. This is the most powerful way for public funds to be used to make affordable housing available to the people who need it most.

• Fix the Numbers The new law caps annual lot rent increases at 3% (6%, in cases of increased operating expenses or capital expenditures); it limits late fees to a one-time non-accruing 3% fee that posts after the 10th of the month; and it limits security deposits to 1 month’s rent. All of these numbers need to be tweaked:
• Change the benchmark for lot rate increases Some kind of cap on lot rent increases is needed. A 3%/6% cap on lot rate increases is fair for everyone — provided the benchmark is market rates. As discussed above, market rate lot rents are very low. Lot rent for a space on which a 3 bedroom two bathroom mobile home sits should be slightly less than half the cost of the rent for a comparable two bedroom apartment. That is $300-$425 per month, in most markets. A tenant who makes the minimum wage can afford that. The cap 3%/6% should apply — but only once market rate levels have been met. Anything else will discourage park owners from filling lots and making capital improvements.
• Increase late fees Under the new law, park owners can only charge one non-accruing late fee of 3%, that posts after the 10th of the month. C’mon guys — this is crazy. The late fee for a $330 lot rent is $10. That is peanuts. My mortgage is due on the first of the month. I pay it on time because I face penalties if I pay it late. Many of my tenants get paid by their employers on the first or 15th of the month. If their employers were late in making payroll, the tenants would be, rightly, angry. Without a late fee structure that has some teeth to it, there is no incentive for tenants to pay any time before the end of the month. That is clearly not the intent of the law.

Would the new rule make sense if chronic late-payers’ lot rent were guaranteed by an entity with good credit quality, like New York State? Sure. Does it make sense under current law? No, no, no.

• Increase security deposits It takes 4–5 months to evict a tenant. After the tenant is evicted, the lot needs to be prepped and a new home needs to be installed. You can count on the process taking eight to twelve months.

As discussed above, under current law, my only remedy if a tenant does not work out is eviction. This means that, if I exercise my only-available remedy, my real and opportunity costs can only be offset by the value of a single month’s lot rent. I need to exercise that remedy to maintain a clean, safe and affordable living environment for the majority of the tenants to whom I am answerable — but it costs me to deliver that service.

Would that make sense if I had remedies available other than eviction, and tenants had access to support if they could not make rent or follow park rules? Of course. But does it make sense absent those backstops? Not at all.

The new law is a good first step. But for it to be effective, we need to do two things. First, we need to recognize that unscrupulous park owners are only one problem faced by land-lease tenants. Decaying infrastructure and a minority of neighbors who do not, or can not, maintain their property are much bigger and more common problems. Regulating park owners’ behavior will not solve these problems. Second, we need to step up and fix those problems with government support. Failure to do so will cause large swaths of the state’s most vulnerable constituents to suffer.

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