Manufactured housing is in its infancy in Australia, but key macroeconomic trends are in its favour and promise a rosy growth trajectory and outperforming yields for investors in the sector.
The business model -- which is well established in the United States -- is based on offering affordable housing solutions, mostly to retirees.
It allows buyers to purchase a home but not the land it sits on. This ensures no change to their eligibility for both pension payments and rental assistance. ASX-listed manufactured housing firms include Gateway Lifestyle, Ingenia Communities and Lifestyle Communities.
Retirees may be attracted to manufactured housing if they are priced out of the regular housing market or if they want to sell an established house and realise substantial capital to fund their retirement.
Residents of these manufactured housing estates lease or license the right to occupy a site from the operator or land owner. This affordable community living comes at a relatively low cost to the government.
“We expect that manufactured housing will rise in popularity, with many retirees’ superannuation balances unable to support owning a home and a comfortable retirement,” says Julia Forrest, REIT portfolio manager at BT Investment Management.
According to Gateway, which listed in June, just 0.6 per cent of the Australian population live in manufactured housing.
That compares with 6 per cent of the US population, which has over 50,000 manufactured housing communities. Around 9 per cent of new US homes are manufactured homes, and the average sale price of these was $US63,000 in 2013.
“These statistics highlight the future potential of the industry in Australia,” said Macquarie Wealth Management in a July report. “Ageing population, financial pressure and housing affordability will drive increased understanding and acceptance,” says Macquarie, which has an outperform rating on Gateway and acted as advisor in its IPO.
The ABS projects that the proportion of 55-75 year olds will rise from 20 per cent to 22 per cent of Australia’s population by 2050, meaning the age group will then number more than 8 million people. Added to that is financial pressure on retirees and constrained housing affordability, which is helping to increase acceptance of manufactured housing as retirement accommodation.
The median super balance of a person over 60 and not yet retired was just $95,000 in 2012, according to the intergenerational report, and past ABS estimates have put the number of people aged 65 to 69 with no superannuation at more than 40 per cent.
Gateway has a portfolio of 37 manufactured housing estates, with 6059 sites in Queensland, New South Wales and Victoria. It has transacted 230 home sales and settlements in the past three years, with manufactured home sale revenue of more than $58 million.
Fans say it is a high-yielding, defensive play, and note that many of the residents are on rent assistance, so the venture is arguably government subsidised.
Berkshire Hathaway has owned manufactured housing firm Clayton Homes since 2003 after purchasing the business for $1.7 billion.
BT’s Forrest notes that great buying opportunities can be hard to find in a low interest rate environment, especially with residential property prices elevated and improving office vacancy rates crippled by tenant incentives.
These affordable housing estates offer a plausible alternative, with yields of around 6 per cent projected for 2016.
“Manufactured housing provides higher yields without increased investment risk,” says Stephen Wheeler, co-founder of US-based real estate investment fund manager HAS Capital.
“Returns from manufactured housing related investments are outpacing investments in other real estate sub-sectors,” he says.