Stacey Epperson is increasing access to affordable housing by creating a value chain that connects manufactured housing companies to providers of low-income housing. In this scalable model, manufacturers are serving a new market while non-profit housing organizations are finding market-based solutions to affordable housing.
The New Idea
Stacey has created the only independent distribution channel for affordable manufactured housing. At the core of Stacey’s idea is factory built housing—homes constructed in factories rather than on-site. Stacey is transforming manufactured houses, historically seen as the “problem” in the affordable housing landscape, into the much-needed solution to inefficiencies in the traditional non-profit, site-built affordable housing model. Stacey works closely with Ashoka Fellow Paul Bradley. While Paul’s organization secures land tenure for people in manufactured housing, Stacey focuses on increasing the quality and quantity of the homes themselves. To achieve her vision of “manufactured housing done right,” Stacey has worked with industry manufacturers to create new product lines of high-quality affordable manufactured housing designed to build wealth and save an average of $1,800 per year in energy expenses for low-income homebuyers. She has also created a network of non-profit affordable housing providers interested in offering manufactured homes to their clients. Through public-private partnerships that bridge these two sectors, Stacey is shifting practices in both the private manufactured housing sector as well as attitudes among the affordable non-profit housing community about the potential of manufactured housing to give more and better choices to new home-buyers.
Low-income American homeowners and home seekers face an affordable housing market that lacks high-quality options. The majority of low-income Americans living in unsubsidized affordable housing lives in factory-built homes and not in site-built homes—whether mobile homes (which are no longer produced), manufactured homes with foundations, or modular homes constructed in a factory and assembled onsite. Two million American families live in mobile homes that predate an important 1976 Department of Housing and Urban Development code stipulating safety requirements and other standards for factory built housing. The large majority of these homes are both structurally and environmentally unsound. They emit three tons of carbon annually, contributing to greenhouse gas emissions while costing their inhabitants—some of America’s most vulnerable homeowners—an average of $500 a month in energy bills.
But old homes are not the only source of low-quality affordable housing. The factory-built housing industry continues to produce and sell low-quality homes, often in fast-paced, high stake sales involving subprime loans. Sixty-five percent of new manufactured homes lack foundations that qualify as Federal Housing Authority Type II permanent foundations, which has important legal and financial ramifications. In the eyes of the law, homes without these foundations are chattel rather than real estate. Chattel is personal property—a depreciable good rather than an appreciable asset. Thus, home seekers who buy manufactured housing without permanent foundations are not investing in assets that contribute to wealth creation. What is more, these buyers also do not have access to government-backed mortgages available to homeowners. Instead, they qualify only for high-interest consumer loans like the financing available for cars. Rules and regulations aside, manufactured houses without these foundations are less safe, less durable, and less energy efficient than their counterparts with these foundations.
Although, it costs only $5,000 to put a permanent foundation on a manufactured home, retailers have no incentives to do so. Retailers more often than not run parallel financing operations offering high interest personal property loans. Such loans are profitable for the retailer-cum-financier, and these financing arms are often retailer’s main profit centers.
Low quality financing matched with low-quality products is obviously bad for the consumer. It is also bad for the industry. In the past decade, the manufactured housing industry has lost two-thirds of its capacity due to bad lending practices, and foreclosed units; since 2005, some 2,000 are clogging the system.
Though site-built affordable houses are typically higher quality than the standard inexpensive manufactured home, they are expensive and often require subsidies; they are time consuming to construct, taking on average 18 months from start-to-finish; and they are environmentally unfriendly to build—that construction process generates an enormous amount of waste when compared to the process for constructing factory-built homes. Thus, the site-built home model limits the number of clients that affordable housing non-profits can serve with this type of housing, delaying homebuyers from moving into new homes in a timely fashion, and often causing low-income home seekers to turn elsewhere for their new houses.
Stacey is pioneering manufactured housing as a viable and affordable housing solution by creating groundbreaking public-private partnerships between the manufactured housing industry and the non-profit affordable housing community. The partnerships help these two industries work together in a model that benefits not only both industries but also, ultimately, the customer: low-income American homeowners.
Next Step is Stacey’s vehicle for this market transformation. Next Step has created a network of fourteen affordable housing non-profits that have committed to providing “manufactured housing done right.” Not just any affordable housing non-profit can gain entry to the Next Step network. These organizations are one-stop home ownership centers—high performing non-profits that help their clients through the entire process of home buying and home-owning, from understanding their financing options to understanding their rights. Some of these organizations seek to offer factory-built housing as an alternative product to site-built housing. Others seek to entirely replace their site-built offerings with factory-built housing. Others may already offer manufactured homes to their clients but they seek better prices and high-quality housing, which Next Step can provide. Stacey is leading this network of organizations to adopt a shared vision of manufactured houses as the solution to many of the affordable housing industry’s current flaws and downfalls.
Next Step is able to guarantee the highest quality homes at the lowest prices because of a critical alliance with Clayton Homes. The largest manufacturer of factory-built homes, Clayton Homes’ manufactured houses account for 60 percent of total national supply. Next Step’s partnership with Clayton centers around the production of a new line of high-quality housing that meets the specific requirements of Next Step’s network of nonprofit affordable housing providers and their clientele. Together, the two have developed a special branded line of affordable manufactured housing—Next Step homes. These homes meet important HUD standards and specifications as well as USDA Rural Development requirements. They have Type II permanent foundations, which qualifies them for government-backed mortgages and increases their resale and asset-building potential. These homes meet superior energy efficiency standards and boast Energy Star certification.
Clayton builds these homes because there is a demand for them. Indeed, Next Step functions as a bulk retailer of this line of housing. The organization brings deal flow to Clayton thanks to its large network of reliable and consistent high volume clients—the Next Step Network of partner affordable housing non-profits committed to bringing manufactured housing to the populations they serve. Next Step leverages the aggregated demand of its network to secure volume discounts from Clayton. Next Step Network partners buy homes at factory direct—wholesale—pricing as a for-profit retailer would.
Though Next Step serves as a broker between the manufacturer and non-profit housing providers, it is hardly a traditional retailer. Next Step does not mark-up the cost of houses it distributes to its networks. Rather, Stacey’s organization receives a fee from Clayton Homes for its constant and consistent supply of deals. Next Step then encourages network partners to tag a small markup—between 6 and 8 percent—on the homes they provide clients. In this way, Stacey and her organization are not only transforming the type of product these organizations, many of which used to scorn manufactured housing, offer their clients. They are also transforming the way these non-profits think about operations at a fundamental level, challenging them to serve more clients with better products using a model that generates revenue.
For more reasons than one, Next Step manufactured houses are a better buy for clients than manufactured homes from retailers. Because of the bulk discount factory pricing Next Step members receive, and the minimal markup these non-profits add to their homes, Next Step network members can offer manufactured housing to their low-income clients with lower sticker prices than the for-profit market can. What’s more, homebuyers in the Next Step network also save money on financing because their homes—built on Type II foundations—qualify for Federal Housing Authority mortgages with fair terms and low-interest rates rather than the high interest consumer loans offered by many independent retailers. Next Step manufactured homes compete in the affordable home market in a way that site-built homes could not.
Next Step’s homes—of which they have produced 87—also save homeowners money over time. Their Energy Star certified homes—equipped with proper insulation, high performance windows, efficient HVAC equipment among other energy-saving amenities—use 25 to 30 percent less energy than standard manufactured homes. Stacey likes to tell the story of an elderly client, Ms. Kelly, whose energy bill dropped so significantly after moving into a Next Step home, her utility company feared she had died. In fact, she was alive and well in a new, Next Step home—an even larger house than the energy guzzling mobile home she had replaced with her Next Step house. Stacey is committed to replacing the two million pre-HUD code mobile homes like Ms. Kelly’s with high-quality, energy efficient models like Next Step homes. But they do not have to be the Next Step brand. Stacey’s plan for scaling impact is through product, policy, and principles. As Next Step’s membership increases, the Next Step brand homes will increase considerably. Stacey has already testified before congress in support of using existing funds to replace old mobile homes. Finally, she is eager to see her market-based principles catch on among other affordable housing leaders, transforming the nature of non-profit manufactured housing and the affordable housing market overall. Already, the State Financing agencies of New York and Tennessee have developed mobile home replacement programs based on Next Step principles.
Next Step is currently staffed with three FTEs, including the President & CEO, the Marketing & Operations Specialist, and the Grants & Data Manager; one part-time employee handles Network & Policy Support, and one VISTA volunteer supports Communications & Fundraising. Next Step is in the process of becoming a 501c3.
Stacey did not stumble upon the weaknesses of America’s affordable housing market by chance. She herself grew up in rural Appalachia in a farmhouse with neither running water nor a heat source more advanced than burning wood. She lived in an area where neighbors and friends lived in mobile homes that lacked the sturdy foundations needed to classify as manufactured homes. But the most powerful memory Stacey has of manufactured homes did not come until just after graduate school. On a bus trip across Kentucky that Stacey took for her job with Kentucky Housing Corporation, she began to count mobile homes to pass the time. An exercise that started as entertainment quickly became a transformative experience as Stacey realized, with horror and prejudice, what her home state must look like to the outside world.
Stacey carried prejudices against mobile and manufactured homes well into her career in affordable housing. After a stint in consulting, Stacey ended up at Frontier Housing, a non-profit affordable housing leader in Kentucky. She spent a decade there, ultimately taking over the helm as the organization’s second CEO. At Frontier, Stacey championed rigorous homeownership workshops matched with great financing and site-built homes. The homebuyer education curriculum she designed even warned against the allures of manufactured housing.
At Harvard’s Achieving Excellence training program for nonprofit leaders, Stacey had the “a-ha” moment that would flip her approach to affordable housing upside down. There, she read a case study in which low-income clients chose to take loans from loan sharks rather than the non-profit loan organizations that had their best interests at heart. The analogy to Stacey’s own industry was obvious to her. Out of every ten clients who came to Frontier looking for affordable homes, only one would walk away with a key to a new Frontier-built home. The other nine turned to manufactured housing dealers, who were offering fast turnaround, a range of housing options, and easy-to-understand financing. Like the loan organizations in the Harvard case study, Frontier—and other non-profits operating site-built affordable home operations—couldn’t compete with the for-profit market.
Stacey became a student of manufactured housing, coming to understand the ins and outs of an industry she learned was collapsing in on its own predatory practices. She went to dealers’ lots undercover as a potential buyer and learned she could receive a house in ninety days—about a sixth of the average time it took her own organization to put a new roof over a client. She came back to Frontier with a performance challenge: triple the number of customers Frontier served while cutting production time in half, all while maintaining a loan delinquency rate below 5 percent. A strategic partnership with Clayton Homes, the leading producer of manufactured homes, allowed Frontier to achieve that performance challenge. Stacey’s conversion was complete.
Stacey’s vision for non-profit manufactured housing is national. For this reason, Stacey left Frontier in 2012 to start Next Step homes to create and leverage a network of non-profits that can bring the model she had proven at Frontier to scale. Thirty years from now, Stacey plans to take a bus ride like the one she took in her twenties—though importantly different. On this ride, she plans to count the number of manufactured homes she knows were built well and financed fairly. She plans to lose count.