How Congress can help the private sector reduce housing costs
Sean Roberts, CEO of Villa
There is a housing shortage in this country, which we summarized in our recent series on Understanding the Housing Crisis. One of the more interesting ways to mitigate this housing shortage crisis lies in building a greater share of manufactured homes, especially to satisfy demand for smaller, entry-level homes, which are badly needed and dramatically undersupplied. “HUD code” manufactured homes, often referred to simply as “manufactured homes,” are a type of factory-built housing. These homes are constructed in a controlled factory environment, transported to the site, and then installed on a foundation. The term “HUD code” specifically refers to the standards set by the U.S. Department of Housing and Urban Development (“HUD”) for the construction and safety of manufactured homes. We believe deeply that HUD code homes could be an even more impactful part of the housing supply picture if Congress and HUD make a few smart changes to empower HUD builders to create more affordable housing.
Recently, the Brookings Institute put out a good piece on what HUD should do to help meet today’s housing challenges. The piece points out several issues in the housing market and makes the case that “HUD’s primary focus—subsidizing poor renters in large cities—is too narrow”. We agree with this. These subsidies are expensive, and they don’t really solve the root cause of the issue, which is a lack of affordable housing supply. Brookings highlights several ideas to use low-cost, flexible, collaborative approaches – but it misses one of the biggest levers, which is removing the barriers that will catalyze the private market to step up and meet demand.
Below, we will make the case for a particularly big lever that Congress and HUD have to increase housing production (and therefore affordability) by making some big changes to how manufactured homes are built in America. Specifically, we advocate for the removal of the steel chassis requirement for HUD code homes that are installed on permanent foundations.
What are HUD code homes?
Broadly speaking, volumetric prefabricated homes – where the home is built in a factory as a “3D” unit – fall into two categories: modular, which are built to comply with local building codes, and manufactured, which are built to comply with federal HUD code standards. Both types of volumetric prefab homes are constructed in factories, shipped to the project site, and installed. They both offer significant advantages over traditional “site-built” construction in terms of faster, more certain construction timelines and lower construction costs. Both are subject to rigorous inspections by the manufacturers and third-party inspectors to ensure high quality standards are met.
HUD code manufactured homes must meet the federal construction standards as laid out in the Manufactured Home Construction and Safety Standards (the “HUD code”). Pursuant to federal law passed in 1974, these homes are built on a permanent steel chassis (see photo) that sits under the floor cassette of the home unit. The sections of HUD code homes are often assembled together in various configurations to create larger home units.
HUD code construction is a great way to build housing, but unfortunately there are a lot of misconceptions about HUD code manufactured homes that are unwarranted and not grounded in actual data. A big misconception is how “mobile” these HUD code manufactured homes really are. In fact, research shows that less than 5% of manufactured homes are ever moved from their initial set up sites.1 Presumably, this is even lower (if not zero) for manufactured homes installed on permanent foundations. Another misconception is that manufactured homes are a lower quality than site-built homes. This is not the case as HUD notes that “evidence from the American Housing Survey suggests that the incidence of severe structural problems is no more frequent among manufactured housing residents than it is among all owner-occupants”.2 In fact, newer HUD code manufactured homes are generally of high quality, and multi-section homes are quite often indistinguishable from a traditional site-built home. Finally, another big misconception is that the value of manufactured homes will not appreciate the same way as site-built homes. This is not the case based on both a Consumers Union paper3 that was cited by HUD4 as well as a paper from HUD5 which shows that manufactured homes placed on owned land do demonstrate appreciation rates that are comparable to those of site-built homes. Overall, HUD code manufactured homes make for a compelling alternative to traditional site-built homes, especially for smaller, entry-level homes.
1 Bean, Janet L. 2004. “The NIMBY Syndrome and Low-Cost Manufactured Housing Developments: Can Landscape Architecture Help Overcome Community Opposition?” Masters Thesis, Landscape Architecture, Virginia Polytechnic Institute and State University. 2 “Regulatory Barriers to Manufactured Housing Placement” (2011), HUD. 3 Consumers Union. 2003. Manufactured Housing Appreciation: Stereotypes and Data. Also, 4 “Regulatory Barriers to Manufactured Housing Placement” (2011), HUD. 5 HUD, “Is Manufactured Housing a Good Alternative for Low-Income Families? Evidence from the American Housing Survey” (Dec 2004).
The advantages of building homes in a factory setting are numerous. It is less labor-intensive than site-built construction, and the workers operate in a controlled, safe, indoor environment. It enables economies of scale with mass production, as standardization of production processes using modern manufacturing equipment and approaches drive efficiency. Compared to site-built construction, it typically provides greater cost and timeline certainty to whomever is developing (and ultimately buying) the homes.
In the Housing and Community Development Act of 1974, Congress gave HUD the authority to regulate the design and construction of manufactured housing, as well as to protect the consumers buying these homes. At the time, this was a good policy. Congress created, and HUD then implemented, a well-designed program to protect the health and safety of homebuyers of this important component of affordable housing. The HUD code led to standards that greatly improved fire safety (a large challenge at the time!), structural integrity (to perform properly in high-wind events), energy efficiency, and overall durability, while reducing exposure to dangerous chemicals like formaldehyde.6 This federal standard was important to create a unified national building code that would work across various states, which mattered because a lot of manufactured housing units were shipped across state borders which had different and inconsistent local code requirements.
6 “Manufactured Housing: Reflections from HUD Leadership”, HUD, March 2016.
Importantly, the HUD code standards override any other local building codes because it is a national building standard. This means that every local jurisdiction and state must accept HUD’s standards. This can be a major advantage of building with HUD code homes because the process of getting permits is more streamlined (given the federal approvals of the house building plans). Many local building departments are resource-constrained, with limited budgets and staffing, which often results in slow processing times for building permits of new homes and exacerbating the undersupply problem. Using HUD code pre-approved homes is a way to mitigate the burden on these building departments and help increase speed to get new housing built.
The HUD code is a minimum standard for construction. Many builders, including Villa, design home products that often exceed the HUD code across several dimensions, including, for example: 2×6 exterior framing (instead of 2×4), higher ceiling heights (9’ vs 8’ heights), higher insulation values, solar ready roofs, and adding features like dormer windows, upgraded fixtures and finishes, meeting Energy Star ratings, etc. Builders can choose to build to more rigorous standards than the HUD code if they want to, and many do.
Congress passed the initial law in 1974 and the federal HUD code was developed and went into effect in June 1976. Though some updates have been made since then, most of the fundamental aspects of the code have remained constant since 1976, almost 50 years ago. Imagine if regulations held cars to the same standards as in the early-1970s, requiring carburetors and lead-acid batteries; no fuel injection, no electric cars, no seat belt laws…while it would look very cool to drive a vintage car (well, some models…), it would likely be unsafe and worse for the environment, and require expensive maintenance to keep the car running. We are (generally) good at innovating policies to capture more modern approaches to doing things, but the federal HUD code lags behind where it could be – and there are several changes worth implementing for today’s housing market.
How should the HUD code be updated for today?
Over the years, HUD has made many important updates and improvements to the code, but there is a lot more that can be done to further unlock this important component of affordable housing supply. Manufactured homes work well and they represent a highly scalable path to reduce the cost of home construction and “bend the cost curve down” for new housing supply. We have abundant production capacity across the country in ~140 factories that are set up to build HUD code homes (though that has declined from 300+ in recent decades)7 – and they build great products.
7 Harvard JCHS, “Five Barriers to Greater Use of Manufactured Housing for Entry-Level Homeownership”, Jan 23, 2024.
One highly impactful change for HUD code homes would be to remove the steel chassis requirement for homes going onto a permanent foundation. This is potentially the hardest change to make, as HUD has stated that it would require an act of Congress to change the fundamental definition of a manufactured home which is defined in the Manufactured Housing Improvement Act of 2000.8 HUD cannot change this requirement at the agency level and it will require Congress to pass legislation to make this change. At Villa, we believe this change is well worth Congress (and HUD) pursuing to help facilitate the production of more attainable housing and help bring the costs of homeownership down for many people.
Yes, changing the law with Congress will take a lot of effort. Moreover, the implications of changing the federal law around the chassis requirement could cause “ripple effects” through effectively every state’s laws that are based on referencing the federal manufactured housing laws and building code. It will take work, and needs to be handled carefully and thoughtfully to get it right. That said, there are mechanisms that can make this feasible and we’re optimistic that this can be accomplished.
Benefits of removing the chassis requirement for HUD code homes installed on permanent foundations
Removing the steel chassis for HUD code homes being installed on permanent foundations (and therefore not intended to be relocated after installation) would help reduce construction costs and materially increase the ways that affordably-produced HUD code homes can be applied throughout the market.
In terms of reducing cost, removing the steel chassis requirement would eliminate material waste from large amounts of steel that are not really required when the home is properly framed with an appropriate floor cassette and installed on a proper permanent foundation. In fact, this is already how most volumetric modular homes are built; they do not have the steel chassis requirement and can be shipped easily on a standard “lowboy” truck trailer.
Two-story HUD code homes have been built for many years (which surprises many people who are less familiar with this type of home building under the federal HUD code). These homes can be a fantastic affordable option that enables two-story home construction. However, the chassis requirement means that the module for the second story still has the steel chassis underneath it. This creates a somewhat awkward home where there is an abnormally large ~18” gap in between the first and second stories, as physical space is needed to accommodate the height of the chassis. With some adjustments to how the house is framed, this steel chassis is not needed beneath the second story of the home. Removing the chassis would reduce the cost of these two-story homes and enable two-story HUD code homes to be built in a manner much more similar to traditional site-built homes.
8HUD “FAQS - MANUFACTURED HOUSING IMPROVEMENT ACT OF 2000”; https://www.hud.gov/program_offices/housing/rmra/mhs/faqs72010 (accessed January 2024)
In terms of expanding applications for where HUD code homes can be built, removing the chassis would open up some interesting new pathways to getting affordable homes built in new places.
Many local governments have local rules that will effectively block adding manufactured homes with the HUD-mandated steel chassis. Without the chassis involved in the home, these barriers would be reduced (though local governments could still discriminate against HUD code homes because they are not built to local building codes, which is a separate policy issue that should also be addressed, but that’s a separate matter).
In 2011, HUD released a great study covering “Regulatory Barries to Manufactured Housing Placement”. Their analysis found that there are several regulatory barriers to placing manufactured homes that involve “permitting requirements, fire codes, zoning codes, subdivision regulations, and architectural design standards all impeding placement.”9 We contend that removing the chassis would be a big step towards mitigating some of these local barriers to manufactured home placement. Though it won’t solve all the regulatory barriers and more regulatory reform will be needed over time, removing the chassis requirement will bring cost-efficient HUD code homes one step closer to traditional site-built homes.
In their paper, HUD noted that, “with the increased use of multi-section units and recent innovations in manufactured housing building technology, particularly integrated floor and chassis systems, many manufactured housing units are now virtually indistinguishable from conventional site-built units.”10 HUD code homes can be built very similar to traditional site-built homes. From our perspective at Villa, having experience across designing and installing hundreds of HUD code homes, removing the steel chassis would allow manufactured homes to be set on permanent foundations in a manner that is very similar to a site-built home on a permanent foundation. This would be aesthetically more appealing than how many HUD code homes look currently (depending on the foundation system used) and would make them “work” in many other applications where site-built homes are more common.
The potential of more HUD code home production
We know that there is a massive housing shortage in America. A well-articulated recent post from the Joint Center for Housing Studies of Harvard University sized the magnitude of the issue, but importantly it also cited data from the Low Income Housing Coalition’s latest gap report that the shortage of affordable housing is even more significant for households who are more resource constrained. The post points out that “overcoming our nation’s housing shortage in a way that fully addresses the affordability challenges faced by millions will require a concerted effort to not just add more units, but also more units affordable to the most economically vulnerable households.”11 We at Villa contend that facilitating more supply of low-cost housing is a critical step towards making that happen, and one of the best tools we have to do this is through HUD code manufactured homes being even more cost-effective and widely applicable to different types of applications.
9“Regulatory Barriers to Manufactured Housing Placement” (2011), HUD.
10 “Regulatory Barriers to Manufactured Housing Placement” (2011), HUD.
11 Harvard JCHS, “Estimating the National Housing Shortfall” (January 2024).
Increasingly, HUD code homes are being placed on permanent foundations throughout the country. The vast majority of states have a legal mechanism to convert a manufactured home into real property (rather than personal property), with a few exceptions. Fannie Mae has a great summary of this on a state-by-state basis which can be found here. Additionally, NCLC also has a good summary here. In fact, this type of construction constitutes the majority of what Villa builds. In California, for example, a manufactured home goes through a seamless process known as a 433A to be converted into real property. This is a great way to capture both the benefits of HUD code production as well as getting the home converted into traditional real property.
Once a HUD code home is installed on a permanent foundation on land that is owned by the homeowner (or subject to a long-term ground lease in some places), so long as it meets certain criteria pertaining to site-built features, it can typically qualify for attractive mortgage financing options. These mortgage options are better for consumers than expensive “chattel” loans that are often applied to manufactured homes where they are still personal property. For example, Fannie Mae’s “MH Advantage” program is a great financing option for these homebuyers. Importantly, this program allows appraisers to use traditional site-built comps in their comparable sales analysis which helps greatly in making this type of financing work well for homebuyers.
HUD noted that “built-out urban areas can promote affordable redevelopment using manufactured housing on vacant infill lots, particularly in cities with the potential to capture an important share of the moderate priced housing market.”12 If we want to get more housing built in infill locations where people really want to live and work (as we outlined in our recent series on Understanding the Housing Crisis), then HUD code homes can absolutely be a big part of the solution and, as a country, we should be doing everything from a policy perspective to help support this type of construction.
Removing the steel chassis will help further reduce the cost of these homes and increase the number of potential applications for them. We would like to see Congress consider changing the law so that the steel chassis can be eliminated for HUD code homes that are placed on permanent foundations. It is a win-win for all stakeholders involved and makes a lot of sense. Let’s get it done.
12“Regulatory Barriers to Manufactured Housing Placement” (2011), HUD.
The information provided here is not intended to and does not constitute legal advice. The information, content, and materials are provided for general informational purposes only. No reader, user, or browser of this site should act or refrain from acting on the basis of information on this site without first seeking legal advice from counsel in the relevant jurisdiction and should contact their attorney to obtain legal advice. Villa expressly disclaims all claims and liability that may be based upon or related to the information provided herein.
