Key problems and their causes | Manufactured homes feedback

Key problems

Key problem 1: Unsustainable and unpredictable site rent increases

Site rent is becoming increasingly unaffordable for many home owners. A significant proportion of respondents to the 2022 survey indicated that living in a residential park had become (or could soon become) unaffordable and that site rent increases have affected their ability to afford essential items and services.

Analysis suggests that across the market, increases in site rent are likely to outpace increases in the age pension. While the rate at which site rent outpaces pensions is modest for those experiencing the median level of increase in site rent, it is much more pronounced for home owners experiencing increases above the median. Regardless of the rate at which the gap widens, for most home owners the proportion of income they spend on site rent will grow over time, leaving less for other essentials and potentially increasing rates of housing stress. Home owners on low incomes (55% of survey respondents), and single person households are particularly at risk.

Many home owners experience site rent increases that are higher than they expected, and often could not have predicted, even if they obtained legal and financial advice before signing their site agreement.

Site rent increases based on market rent reviews usually result in higher increases than other methods of increasing site rent and are particularly unpredictable. In the 2022 survey of home owners, the median market rent review increase experienced by respondents was 7.2%, with some home owners experiencing rent increases between 10%-30%. Increases such as these are especially likely to impact home owners’ ability to budget and pay for necessities such as food, transport and medication, and can undermine housing security for retirees on a fixed income.

Home owners argue that site rent increases should be broadly aligned to increases in the cost of operating and maintaining the park, and that it is not fair if site rent increases result in the park owner profit component rising beyond the level set in the initial site agreement. Fairness also requires that prospective home owners fully understand when a site rent basis will result in declining affordability for them over time, before they sign a site agreement.

Given the significant cost of entry into a residential park, the substantial barriers to exit, and their relative vulnerability, home owners should expect a higher level of housing security for their investment. The regulatory framework can help ensure home owners are protected from unreasonable impacts from business practices related to rent increases.

Key problem 2: Delays in selling a manufactured home

Delays in the sale of manufactured homes, when they occur, are a significant problem for home owners. Selling the home on site is the only practical way for a home owner to leave a residential park as relocating a manufactured home is usually impractical and unaffordable.

Delayed sales can occur due to the complexity of the process outlined in the regulatory framework and where park owners have low incentives to assist with sales. However, the likelihood and extent of delay is affected by market conditions and other factors such as the asking price and condition of the home. In circumstances of high housing demand and limited supply, delays are not as common. The evidence suggests that the average time to sell a manufactured home has improved considerably since 2013 when approximately 56% of home owners responding to a survey took at least one year to sell. However, it is important to recognise that the factors causing delays are still present and may become more influential on sale times in a slower housing market.

Home owners who can no longer live in their manufactured home, for example because they need to move into aged care, are most impacted by delays in sale as they must continue to pay site rent while paying for aged care or other accommodation. These home owners are also unable to access their capital which makes it unlikely that they could afford to pay an aged care Refundable Accommodation Deposit (RAD) or invest in another form of accommodation. This can have impacts on a home owner’s finances, health and quality of life.

Causes / contributors

The C-RIS identifies six causes contributing to the problems which are summarised below.

Key problems

Key problem 1: Unsustainable and unpredictable site rent increases

Site rent is becoming increasingly unaffordable for many home owners. A significant proportion of respondents to the 2022 survey indicated that living in a residential park had become (or could soon become) unaffordable and that site rent increases have affected their ability to afford essential items and services.

Analysis suggests that across the market, increases in site rent are likely to outpace increases in the age pension. While the rate at which site rent outpaces pensions is modest for those experiencing the median level of increase in site rent, it is much more pronounced for home owners experiencing increases above the median. Regardless of the rate at which the gap widens, for most home owners the proportion of income they spend on site rent will grow over time, leaving less for other essentials and potentially increasing rates of housing stress. Home owners on low incomes (55% of survey respondents), and single person households are particularly at risk.

Many home owners experience site rent increases that are higher than they expected, and often could not have predicted, even if they obtained legal and financial advice before signing their site agreement.

Site rent increases based on market rent reviews usually result in higher increases than other methods of increasing site rent and are particularly unpredictable. In the 2022 survey of home owners, the median market rent review increase experienced by respondents was 7.2%, with some home owners experiencing rent increases between 10%-30%. Increases such as these are especially likely to impact home owners’ ability to budget and pay for necessities such as food, transport and medication, and can undermine housing security for retirees on a fixed income.

Home owners argue that site rent increases should be broadly aligned to increases in the cost of operating and maintaining the park, and that it is not fair if site rent increases result in the park owner profit component rising beyond the level set in the initial site agreement. Fairness also requires that prospective home owners fully understand when a site rent basis will result in declining affordability for them over time, before they sign a site agreement.

Given the significant cost of entry into a residential park, the substantial barriers to exit, and their relative vulnerability, home owners should expect a higher level of housing security for their investment. The regulatory framework can help ensure home owners are protected from unreasonable impacts from business practices related to rent increases.

Key problem 2: Delays in selling a manufactured home

Delays in the sale of manufactured homes, when they occur, are a significant problem for home owners. Selling the home on site is the only practical way for a home owner to leave a residential park as relocating a manufactured home is usually impractical and unaffordable.

Delayed sales can occur due to the complexity of the process outlined in the regulatory framework and where park owners have low incentives to assist with sales. However, the likelihood and extent of delay is affected by market conditions and other factors such as the asking price and condition of the home. In circumstances of high housing demand and limited supply, delays are not as common. The evidence suggests that the average time to sell a manufactured home has improved considerably since 2013 when approximately 56% of home owners responding to a survey took at least one year to sell. However, it is important to recognise that the factors causing delays are still present and may become more influential on sale times in a slower housing market.

Home owners who can no longer live in their manufactured home, for example because they need to move into aged care, are most impacted by delays in sale as they must continue to pay site rent while paying for aged care or other accommodation. These home owners are also unable to access their capital which makes it unlikely that they could afford to pay an aged care Refundable Accommodation Deposit (RAD) or invest in another form of accommodation. This can have impacts on a home owner’s finances, health and quality of life.

Causes / contributors

The C-RIS identifies six causes contributing to the problems which are summarised below.

  • Cause 1: Consumers have difficulty making informed choices when entering a residential park

    Site agreements establish how much site rent a home owner will pay, and the ways site rent can increase. Site agreements are signed prior to entering the residential park, and it is critical that consumers have made an informed choice based on clear and transparent information and an understanding of how it will apply to their financial and other circumstances.

    Despite precontractual disclosure requirements, it is often only after moving into the park that some home owners become aware of the consequences of their decision. The residential park model, the Act, and site agreements are complex; and choices are often based on the appeal of the lifestyle offered in a park.

    Many home owners buy into residential parks without legal advice, and those that receive legal advice may not receive expert advice that is tailored to their circumstances.

    These issues can result in consumers entering site agreements which become unaffordable for home owners over time.

  • Cause 2: Complexities and inefficiencies with the assignment process

    Selling home owners can assign their site agreement to a buyer of their home. The terms of an existing site agreement are often more beneficial than the terms of new site agreements. However, the assignment process is often not well understood by buyers and sellers, and park owners often have a strong preference towards new site agreements.

    New site agreements create an opportunity for park owners to increase site rent and change the basis on which it can increase. In parks with market rent review clauses in site agreements, the new higher site rent creates upward pressure to align all site rents with the new ‘market’ level. In the 2022 survey, home owners who entered into new site agreements were financially worse off than home owners who were assigned an agreement, resulting in less sustainable site rents for those home owners.

    However, home owners who entered into new site agreements were more likely to think there was a clear and fair process for selling a manufactured home, compared to survey respondents who were assigned an existing site agreement. This suggests that new agreements may have non-financial benefits for home owners arising from a simpler process with clear, accurate and updated information.

    The complexities involved in the sales process can result in disputes, slow down sales, and increase the barriers to exiting the park for home owners.

  • Cause 3: Fairness and equity issues associated with site rent increases

    Market rent reviews are a major reason home owners experience unpredictable and unsustainable rent increases. Home owners cannot estimate the financial impact of market rent reviews when purchasing their home, and market rent review increases are more volatile than other bases for increase. The preparation of the market valuation for a market rent review has subjective elements and many factors which can create upward pressure on site rent. Park owners appoint and pay for the registered valuer which can lead to the perception that valuations are not independent.

    In the 2022 survey, approximately 76% of respondents said their site agreement allowed market rent reviews and 61% of these home owners were unhappy with how their last market review was conducted. Almost three quarters of those who were unhappy said it was because the market valuation made inappropriate comparisons with other residential parks, while 61% said that site rent had increased by an excessive amount, and 44% felt that the process to dispute a market rent review was too complex or intimidating.

    A review of 22 market valuations submitted by home owners found many reached conclusions with evidence that may be contestable, and there were significant differences between home owner procured and park owner procured market valuations.

    Other increase bases may also increase site rent at unsustainable rates, and some bases, such as CPI+X% will consistently outpace fixed sources of income such as the age pension. However, these bases are more transparent, providing prospective home owners an opportunity to factor declining affordability into their purchasing decisions.

  • Cause 4: Imbalances in market power, consumer knowledge and expertise

    Home owners are mainly retirees on limited incomes such as the age pension, and are likely to be increasingly vulnerable as they age. Conversely, park owners are increasingly operators of multiple parks with significant resources, expertise and sophistication.

    The residential park regulatory framework relies on home owners to advocate for themselves, individually or collectively using dispute resolution processes that many find onerous. Home owners can feel that they are not well-equipped to participate in this process, and their fixed income limits their capacity to pay for legal representation in a dispute with the park owner.

    If a home owner thinks that they will be unable to afford to remain in a park, they can feel trapped because they must continue paying site rent until their home is sold or relocated, while park owners are guaranteed income from site rent. This results in an unequal sharing of risk and contributes to an imbalance of power between home owners and park owners.

  • Cause 5: Limited incentives to sell pre-owned manufactured homes

    Park owners receive site rent from home owners who are selling their home, even if the home owner no longer lives in the park, but derive no income from a new manufactured home that the park owner has built, until it is sold. This incentivises park owners to prioritise the sale of new homes over existing homes, particularly in slower markets where supply outstrips demand. This can contribute to delays in the sale of pre-owned homes, with the extent of the delays also influenced by market conditions.

    When park owners act as selling agent for a home owner, they have a potential conflict of interest between their duty as an agent of the selling home owner and their financial interests as owner of the park. Selling home owners must initiate the assignment of their site agreement but are often guided by the park owner who has expertise and can effectively drive the sales process. Assignment is potentially beneficial to consumers when buying or selling, as favourable site rent terms (such as a low site rent) could increase the sale value of a manufactured home and lower the ongoing cost for a new home owner. However, these consumer advantages are inconsistent with the financial interest of the park owner. New site agreements may be used to increase the starting level of site rent and create upwards pressure on site rents across the park (see cause 2) which are normalised through market rent reviews (see cause 3).

  • Cause 6: Manufactured home owners are unable to easily exit the park when conditions change

    Residential parks and manufactured homes have evolved. Modern manufactured homes can no longer be practically or affordably relocated from one park to another (or to another place), and the cost of a home cannot be recovered by taking it out of the park and selling it as a significant portion of the home’s value is attributable to its position within a residential park and access to the services and facilities provided.

    As a result, the only practical way for a home owner to leave the residential park and recover their investment is to find a buyer for the home on site. Until that sale is completed, a home owner must keep paying site rent or they will be in breach of their agreement and could be required to remove their home from the site.

    While home owners carry all the risk of delayed sales, park owners are responsible for many of the things which influence the timely sale of homes, including the maintenance and amenity of the park, the amount of site rent, the terms and conditions presented in new site agreements, and the marketing of the home (where the park owner is appointed as the seller’s agent under a selling authority).

    These barriers to exit limit the bargaining power of home owners during negotiations about site rent as they are unable to take their business elsewhere. These circumstances result in limited incentives for park owners to maintain the park’s amenity and services, and reduce competition that may otherwise place downward pressure on site rent once all homes in the park are sold.