Housing market crisis: Removing this sentence from the 1974 law would promote inexpensive housing

More specifically, the elimination of 5 words from the Law on National Construction and Safety Standards for Prefabricated Housing would increase demand for and availability of manufactured homes, say Lee Ohanian and James Schmitz, economists at UCLA and the University of Minnesota, respectively.

In a Commentary within the Washington Post On Tuesday, they said changing the law to remove the requirement that manufactured homes be “built on a permanent chassis” would make them more attractive to consumers, save them money and be safer, and can be a “first step toward reviving this once-popular housing alternative.”

Shortly before the law was passed, one in three single-family homes produced within the United States was a prefabricated home, meaning it was built entirely in a factory and delivered to customers on a chassis. They were so popular, say economists, that in 14 states by the early Seventies a minimum of half of all homes were prefabricated.

After receiving the manufactured home, buyers typically discard the chassis and connect their recent home to a everlasting foundation. But the 1974 law required the chassis to stay on the house, making it less aesthetically pleasing to buyers and increasing the stigma against living in a “mobile home” in a “trailer park,” Ohanian and Schmitz explained.

And because prefab homes can’t be attached to a everlasting foundation, they’re less protected during severe weather equivalent to tornadoes, they added.

“These factors led to significantly lower demand (and production volume) for prefabricated homes, and lower sales led to higher prices,” the economists said, stating that today only 9% of latest single-family homes are prefabricated, despite the fact that they’re 52% cheaper per square foot than a historically built home.

Eliminating the fixed chassis requirement would also make financing a manufactured home easier, they said. Because manufactured homes are transportable, private mortgages are typically not available for them and as a substitute are sometimes financed like cars, which have higher rates of interest.

Ohanian and Schmitz calculated that customers would save about $175,000 in the event that they bought a manufactured home the typical size of a brand new construct (2,500 square feet), describing this as “a game-changer for home affordability.”

The economists identified that Republican Rep. John Rose of Tennessee has introduced a bill to remove the everlasting chassis requirement from the 1974 law.

“Congress should pass this bill,” they said. “It could make the dream of homeownership a reality for millions of Americans.”

Meanwhile, the housing market continues to suffer from an absence of supply. Realtor.com estimates that there are 36% fewer homes on the market now than before the pandemic. That’s since the recent rise in mortgage rates has created a lock-in effect, where homeowners with low rates of interest are unwilling to sell their current home and buy one other one at a much higher rate.

High rates of interest have also slowed recent home construction, a gradual source of latest housing supply while the inventory of existing homes stays tight.