Real estate bubbles harm real people

Two unrelated developments this past week affecting two RV parks, one in New Jersey and one in North Carolina, illustrate two trends on a collision course. And as with most trends that involve economic forces, those who get hurt the most are those who have the least.

The first trend is that of low-income people increasingly turning to RVs for permanent housing. Notwithstanding industry assertions about RVs not being built for year-round use, the country is studded with RV parks that cater largely or entirely to owners of travel trailers, fifth-wheels and the occasional motorhome who have nowhere else to live. In years past, this population would turn to trailer courts–and many still do. But as the number of trailer courts has diminished and their rents have soared, those squeezed out of conventional rental housing by that market’s price distortions have had to look elsewhere. RVs, comparatively small and under-insulated though they are, therefore have become the new housing of last resort.

The second trend, alas, is that RV parks are now tracing the same inflationary curve as the trailer courts that preceded them. Some are shutting down, for a variety of reasons, and many more are either restricting or phasing out long-term campers altogether; almost all are increasing rents, in the most extreme cases doubling their previous rates. And as with the trailer courts, that means RV parks are pushing out those least able to keep up with rising costs, notably people on fixed incomes and low-wage workers.

In the first instance, a tenant of Surf and Stream Campground in Manchester, NJ, earlier this week filed a lawsuit against the campground’s owners and Ocean County, seeking to halt eviction proceedings and to get help for the residents to find new homes. The campground’s owners are selling the 20-acre property to the county for a nifty $7.45 million–or a whopping $372,500 an acre–to be preserved as open space. The 160 people who have made their homes there, alas, are just so much collateral damage. They include veterans with PTSD, single parents in financial distress, senior citizens and people with disabilities, all of whom will be hard-pressed to find a one-bedroom apartment for even double the $600 a month they were paying for their RV sites.

The owners of the RV park, it should be noted, deny that anyone lives at the campground year-round. The residents, of course, say otherwise–and shouldn’t have a hard time proving the point, which may not be enough to fend off evictions (currently slated to begin later this week) but may trigger assistance from the state’s Relocation Assistance Act. That’s not great, but at least requires the state and county to ensure that those who get displaced are able to find “comparable decent safe and sanitary housing” elsewhere.

The second example, still in its embryonic stage, comes to us in the form of an online real estate listing that popped up this week, offering to sell the Homestead RV Park in Maggie Valley, North Carolina, for a mere $1,650,000. Since the “park” is only 2 acres, that works out to $825,000 per, which makes the New Jersey deal look like a bargain. Crammed into that scant acreage are a modest “clubhouse” and 22 RV “lots,” which the seller earnestly informs us bring in an average monthly rent of $550.

Try to learn more about the Homestead RV Park and you’ll quickly find that it has never been reviewed and has no website, despite being located–as the real estate listing observes–“in the center of the famous vacation destination of Maggie Valley.” How can that be? Quite simply because the park is basically an RV retirement community, its year-round occupancy restricted to “responsible adults age 45 and up.”

Do the math and you’ll quickly figure out that the Homestead has an annual gross of $132,000; because the seller volunteers that his annual operating expenses are $31,680, you may conclude that he has a net operating income just north of $100,000–which at his asking price yields a capitalization rate of 6%. Even in the best of times that’s an awfully low return–and these are not the best of times. Indeed, a buyer would be lucky to get a commercial loan at 6% right now, which means the park’s current cash flow wouldn’t be enough even to cover monthly loan payments.

So maybe that means this park will never sell at the asking price. Or maybe, just maybe, a potential buyer will decide that if current cash flow doesn’t cover expenses, well . . . increase the flow. With Maggie Valley a happening place, with limited room in the mountain valley for additional RV sites, and with the average local one-bedroom apartment renting for $1,400–when one can be found, that is–doubling site rates to $1,100 a month would maintain the same net operating income as is enjoyed by the current owner, even with an outsized mortgage.

Of course, there is that pesky collateral damage problem to consider. But surely a bunch of “responsible adults age 45 and up” should be able to figure out how to cover a doubling of their housing costs–right?

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