Making Mobile Homes Energy Efficient Needs Effective Financing

What were you doing 13 years ago? I was working at a sustainability think-tank writing about energy efficiency. As with many things I’ve done, I didn’t arrive at the task having deep knowledge about the subject. My background at the time was in urban planning and public health. But I learned quickly and I was impressed with how spending money today on making cars, buses, trucks, trains, and housing more efficient would pay off tomorrow. And what was true way back then is true today: poor people spend more on energy for their homes than people with higher incomes. That’s why a recent dust up about mandates to make mobile homes more efficient gave me flashbacks to 2010; mandates for energy efficiency can help people with less money, but only with proper financing.

It is official, South Carolina Senator Tim Scott is running for President. But just before he launched that endeavor, he took the time to send a letter to the Biden administration criticizing their changes to requirements for mobile home manufacturers, mandating that the housing make improvements for energy efficiency.

“[The Department of Energy] estimates that the imposition of its energy conservation standards would result in thousands of dollars in added cost for many families looking to purchase manufactured homes. Worse yet, despite recommendations from the [Manufactured Housing Consensus Committee] to include the cost of testing, enforcement, and regulatory compliance in the DOE Standards, DOE expressly ignores these foreseeable costs”

Here’s where simple math (my favorite kind) comes in. All energy efficiency improvements have a cost; the question is do they pay off in energy savings that either offset the cost of the improvements, including interest payments if they’re made with borrowed money. The Biden administration makes the case in their announcement that consumers will realize real savings.

“According to DOE estimates from the final rule, individuals can expect to save on average $177 per year in single-section homes and $475 per year in multi-section homes on their utility bills. Cumulatively, consumers will save $551 million on utility bills each year and a total of $10 billion over the next 30 years.”

Is that savings worth the additional cost? That’s the complicated part. It depends. Back in 2010 I wrote a long advisory on how to make these sorts of changes in a post called “A Success Story Waiting to Happen: Financing Retrofits for All.”

“Energy conservation loans can pay for the up-front costs of energy upgrades, like new furnaces, insulation, or windows. As long as the savings on utility bills are bigger than the loan payments, property owners come out ahead. In principle, the energy loan model could: invest federal, state, or local stimulus dollars wisely; generate good, local jobs in the construction trades; trim energy bills for property owners and renters; buttress sagging real-estate values; slash greenhouse gas emissions; and unlock a critical door to economic recovery.”

What’s inevitably going to happen is that improvements will, indeed, make acquiring a new mobile home more expensive. That doesn’t help people who want an affordable housing option. Mobile homes are much less expensive than typical homes because they don’t include the cost of land and they are assembled in factories; think mass produced packaged food versus dinner made to order at a fancy restaurant. Add more costs to production and those homes can get just out of reach of people who might otherwise afford them.

But here’s where financing comes in. Loans can be designed to figure out how to spread those additional costs out and factor in energy savings. The DOE’s mandate does include some attention to financing. DOE will be,

“Supporting the establishment of credit-enhancement mechanisms, such as loan-loss reserves, to drive down the cost of financing for manufactured housing and increase access to affordable housing. DOE will provide technical assistance and guidance, facilitate outreach to lenders and agencies, and work with state partners to develop replicable state models that ensure access to affordable, efficient manufactured homes.”

But financing for manufactured homes is tricky because one of the things makes them cheaper – no land costs – also makes lenders unwilling to finance them with mortgages. Many states don’t consider mobile homes real property and consider them risky personal property. That means borrowing for a mobile home is more expensive. Some states have changed laws to allow for mobile homes to be considered real estate, but not all of them. In 2012, Congress passed the Uniform Manufactured Housing Act (UMHA or the Act). But the National Consumer Law Center clarifies that,

“The Act provides an option for homeowners to convert their homes from personal to real property, but does not mandate that homes must be titled as real property. If the Act were enacted in your state, all homeowners—including those in manufactured home communities—would have the right to choose to have their home titled as real property.”

Simple math – spending up front for savings over time to pay back debt – becomes complicated by reality. The federal government doesn’t have a good track record at implementing the kinds of changes being proposed. When I was writing about energy efficiency, I found out how mandates for a prevailing wage for workers making improvements using federal dollars and efficiencies meant that savings were lost, killing the incentive to take the money in the first place.

One solution would be to amend the UMHA and establish some national standards for financing. A mandate could be difficult but one solution would be to offer lower interest loans provided states enact laws that allow conversion of mobile homes to real property. Even faster and more efficient would be backing the loans with a reserve, something the DOE is considering, to lower borrowing costs.

Snobbery about mass production of housing is fading as advocates, developers, and governments realize the benefits of modular and manufactured construction. There are other regulatory barriers at the local level too (see my post Modular Can Help Increase Housing Supply If We Let It), but the typology is a promising way to create more affordable housing supply. Making mobile and modular housing energy efficient makes sense if financing is affordable too.