Manufactured Homes: State-Based Replacement Programs May Provide Benefits, but Energy Savings Do Not Fully Offset Costs
Released: 2013-03-28T00:00:00

Letter

Background

A manufactured home is constructed almost entirely in a factory and transported to the site where it will be occupied, in contrast to a site-built home, which is constructed at the site where it will be occupied. Many manufactured homes are rectangular, wood-framed, aluminum-sided, single-story structures—commonly known as “mobile homes” or “house trailers”—built on a metal frame that can be placed on wheels or on the back of a commercial-grade truck and transported to sites where they are generally permanently installed. Camping or travel trailers—typically smaller structures that can be pulled by car or small truck—are another type of manufactured home but are generally designed to be temporary dwellings rather than permanent residences.

To implement the National Manufactured Housing Construction and Safety Standards Act of 1974, the Department of Housing and Urban Development (HUD) began to issue and enforce standards for the construction, design, performance, and installation of manufactured homes to ensure their quality, durability, affordability, and safety. HUD may enforce these standards directly, or they may be enforced at the state level. These standards preempt state and local laws that are not identical to the federal standards and apply to all manufactured homes produced after June 15, 1976.

Before 1976, there were few provisions for ensuring the safety or quality of manufactured homes. Many of these older homes were built with little or no insulation, thin walls and roofs, uninsulated heating and cooling systems, and inefficient louvered windows (known as jalousie windows).

Further, over time many of these older manufactured homes deteriorated to the point that their windows and doors no longer seal tightly to protect the interior from the weather. According to the Maine Housing Authority, which conducted a study in 2007 of pre-1976 manufactured homes, many of these older manufactured homes have depreciated to the point where they have no market value. In addition, officials knowledgeable about housing and weatherization have stated that some pre-1976 manufactured homes may be unsuitable for weatherization (i.e., making long-term energy efficiency improvements). For example, these homes typically have roofs made of thin metal sheets seamed together and walls built with 2-inch by 2-inch studs; therefore, neither the ceilings nor the walls can accommodate insulation. In addition, most of these older manufactured homes are beyond the scope of federal and state weatherization programs; that is, officials responsible for implementing these programs have generally determined that such homes have become too deteriorated to warrant weatherization or are unsafe for weatherization crews to work on. Approximately 80 percent of older manufactured homes are in the South and West U.S. Census Regions, as are approximately 84 percent of newer manufactured homes. Figure 1 shows an example of a manufactured home built before 1976.

As part of the Energy Policy Act of 2005, Congress formally authorized the Energy Star program to identify and promote energy efficient products and buildings, including manufactured homes. The Energy Star program is designed to identify products that deliver the same or better performance as comparable models while using less energy. An Energy Star-rated manufactured home is a home that has been designed, produced, and installed by the home manufacturer to meet Energy Star requirements for energy efficiency. Such requirements include increased insulation, tightly sealed air ducts, and Energy Star-qualified windows. Each Energy Star-rated manufactured home is inspected while it’s being built in the factory and during on-site installation to verify that it meets Energy Star standards for energy efficiency.

In addition, Title XXVI of the Omnibus Budget Reconciliation Act of 1981 established LIHEAP to help low-income households—particularly those with the lowest incomes that pay a high proportion of their household income on home energy expenditures—pay their home heating and cooling costs.funding grants to states and other entities that, in turn, provide the funds to eligible households. States, territories, and tribes and tribal organizations that wish to assist low-income households in meeting home energy expenditures may apply for a LIHEAP block grant. These grantees then provide payments on behalf of the eligible households directly to energy providers (e.g., utilities), homeowners, occupants, landlords, or others. Grantees provide LIHEAP assistance to eligible beneficiaries up to the maximum eligible payment for that beneficiary as determined by the grantee. Grant funds are distributed in this manner until the grantees’ annual funding has been entirely expended or the fiscal year has ended. LIHEAP funding, adjusted for inflation, was highest from 1981 to 1986 and from 2009-2011, witnessing a decline in real terms in the years in between these two periods. For 2012, LIHEAP allocated to state grantees funding that ranged from about $6.1 million, for Hawaii, to about $375.5 million, for New York. For 2012, LIHEAP allocated to U.S. territory grantees funding that ranged from about $58.7 thousand, for the Northern Mariana Islands, to about $4.2 million, for Puerto Rico, and for all tribes and tribal organizations funding of about $38.4 million.

LIHEAP is a federal block grant program that provides While the federal government establishes overall LIHEAP guidelines, each grantee operates its own program. For example, federal law stipulates that a LIHEAP-eligible household’s income generally must not exceed the greater of 150 percent of the poverty level or 60 percent of the state’s median income. However, LIHEAP grantees may not set their maximum income threshold for applicants below 110 percent of the poverty level, but they may give priority to those households with the highest home energy expenditures or needs in relation to income. LIHEAP grantees may set additional criteria for allocating LIHEAP funding to recipients. For example, they may give priority to households with vulnerable occupants, which HHS defines as those who are at least 60 years old, disabled, or 5 years old or younger.

LIHEAP does not require grantees to match federal funds, but some grantees choose to supplement funds. Grantees also have the flexibility to use up to 15 percent of their LIHEAP funds—or up to 25 percent under certain circumstances—for state weatherization programs that provide funds to improve home energy efficiency, typically by upgrading insulation and heating and cooling equipment. However, because funds from LIHEAP, which assists low-income families in reducing their energy bills by making long-term energy efficiency improvements to their homes, precluded from being used for new construction, they cannot be used to replace existing homes with newer, more efficient models.

GAO, Home Energy Assistance for Low-Income Occupants of Manufactured Homes, GAO-12-848R (Washington, D.C.: Aug. 24, 2012). of occupants of older manufactured homes than occupants of detached homes—15 and 17 percent, respectively.

Three States Have Replaced Older Manufactured Homes with More Energy Efficient Models

We identified three states––Maine, Montana, and Washington—that have used a combination of state and federal funds to conduct pilot programs that replaced older manufactured homes with more energy efficient models. The three programs were relatively small, accounting for about $4.5 million in spending and responsible for replacing 81 homes, over about 2 years. The programs differed in program requirements, the types of financing used, and the types of replacement homes used.

Maine. Maine has conducted one replacement pilot and has one ongoing program. Maine Housing Authority’s (MaineHousing) replacement pilot— conducted from November 2008 through August 2010—was the largest- scale pilot we identified to replace older manufactured homes. Under the pilot, Maine replaced 35 older manufactured homes with new, Energy Star-rated manufactured homes. The program was funded with approximately $2 million in state funds provided by the Housing Opportunities for Maine (Maine HOME) Fund along with $148,000 in mortgage financing from MaineHousing’s Home Mortgage Program.

According to Maine officials, the intent of the program was for the beneficiary to secure a 30-year first mortgage at a 5.25 percent interest rate with Home Mortgage Program funds for part of the cost of the replacement home and a second deferred mortgage with the Maine HOME funds for the balance—deferred in this case meaning that beneficiaries made no interest or principal payments if they stayed in the home. However, of the 35 beneficiaries, 9 could afford the 30-year first mortgage. Loans for these 9 beneficiaries ranged from $8,000 to $40,000, which covered an average 24 percent of the cost of their replacement homes, with the balance covered by the second, deferred Maine HOME mortgage. For the remaining 26 beneficiaries who were unable to afford the 30-year first mortgage, the replacement was wholly funded using a Maine HOME deferred mortgage. Under either loan structure, no down payment or application fee was required. According to Maine officials, potential beneficiaries were selected with input from community action agencies and were drawn from LIHEAP rolls. To be eligible, beneficiaries’ manufactured homes were required to have been built before 1976 and deemed unsuitable for weatherization. Beneficiaries were also required to own the land on which the home was situated. The first pilot ended in 2010 when all the available funding was used, and officials told us they have another pilot ongoing.

Montana. Montana’s replacement pilot—conducted from December 2008 through September 2010—replaced 19 manufactured homes with more energy efficient models. It was initially conceived not as a pilot, but as an ongoing program; however, when private underwriting for loans for replacement homes could not be secured, the program was turned into a pilot. Under the pilot, beneficiaries received a replacement home using a combination of state funds and federal grant funds. Total funding for the program was approximately $804,448 and consisted of $354,886 from the state’s general fund and about $449,562 funded by a combination of Montana Board of Housing first-time homebuyer assistance and the U.S. HUD’s HOME Investment Partnerships (HUD HOME) Program. Funding for each replacement home was determined on a case-by-case basis. Under the program, money from Montana’s general fund was used to provide direct, 15- to 20-year loans at a 2 percent interest rate for all program beneficiaries, which beneficiaries were required to repay in full with monthly payments. Based on the beneficiaries’ ability to pay, these loans ranged from $9,500 to about $20,000. The remainder of the financing was provided using HUD HOME and Montana Board of Housing funds, which the beneficiary was not required to pay back as long as they complied with program rules, such as the requirement that beneficiaries’ homes be owner-occupied. Potential beneficiaries were identified through community outreach by participating community action agencies based on the condition of the homes and household income and the presence of vulnerable occupants. Unlike Maine, the pilot did not require the beneficiary to own the land on which the home was situated but required that the beneficiary’s lease on the land exceed the terms of the loan. Montana’s pilot was unique among the pilots we reviewed in that nearly half of the replacement homes were previously owned manufactured homes. Officials told us they chose to purchase previously owned homes to reduce costs. In addition, unlike the other state pilots we reviewed, Montana’s pilot did not require replacement homes to be Energy Star rated; however, according to program officials they were generally significantly more energy efficient than the homes they replaced. The pilot ended in October 2010, when it had used all the available funds. Montana officials told us they have no immediate plans to make the pilot an ongoing program or to conduct another pilot.

Washington. Washington’s replacement pilot—conducted from July 2008 through March 2009—replaced 27 manufactured homes with new, Energy Star-rated manufactured homes. The pilot was funded by a $2 million grant funded by HUD’s HOME Program. Under the pilot, beneficiaries received a deferred, forgivable 15-year loan, which required no down payment and no monthly payments on the loan. Like Montana’s pilot, the beneficiary was not required to own the land on which the home was situated; however, unlike Montana, the pilot required the beneficiary to have only a 1-year lease on the land. Initially, each project was limited to $60,000 total cost; however, in some cases, utility upgrades and other costs necessitated granting waivers to the investment limit and making amendments to replacement contracts. Like Montana’s and Maine’s pilots, potential beneficiaries were selected with input from participating community action agencies from a list of occupants who were vulnerable (e.g., older individuals and families with young children) and whose homes were in need of weatherization assistance but were deemed to be beyond repair. The pilot ended in March 2009 when all the available funding was used. State officials told us that they would like to make the pilot an ongoing replacement program or conduct another pilot, but that they have no immediate plans to do so because of a lack of funding sources, among other challenges.

Table 1 provides a comparison of the three replacement programs.

States Reported Facing Challenges, Including Difficulty Finding Potential Beneficiaries Who Were Eligible and Willing to Participate

Officials from all three state replacement pilot programs and representatives of organizations and agencies that aided these programs told us that they faced three key types of challenges: (1) many potential beneficiaries were not eligible to participate; (2) some potential beneficiaries were not willing to participate; and (3) other logistical challenges, such as finding suitable replacement homes within a reasonable distance to transport them to beneficiaries, which resulted in higher costs.

Specifically, officials and representatives of organizations and agencies that aided these programs told us that many potential beneficiaries were not eligible to participate for three key reasons:

Liens on their property. Officials in Maine with an agency helping to identify potential participants told us that their program stipulated that potential beneficiaries could not have any liens—such as outstanding property taxes or sewage fees, or foreclosure proceedings—on the property that would receive the replacement home. They told us that a property with a lien had a higher risk of foreclosure. These officials told us that, as a result, many potential beneficiaries were disqualified due to liens on their properties.

Did not own or have a long-term lease for the land. In Maine, potential beneficiaries were required to own their properties and, in Montana, they were required to have long-term leases. Officials from these programs told us that these policies were intended to improve the likelihood of beneficiaries staying in their replacement homes. However, these officials told us that many potential beneficiaries were disqualified because they lived in manufactured home parks, where lots are typically held on shorter-term leases.

Poor credit histories. Officials from all states told us that, in some cases, potential beneficiaries’ credit histories, which made them ineligible for any loan, were so poor that it was deemed too risky to enroll them in the replacement program.

In addition, these officials and representatives of organizations and agencies that aided these programs told us that, in the pool of eligible potential beneficiaries, some were unwilling to participate because they were:

Mistrustful of program’s legitimacy. Some potential beneficiaries were doubtful that such a program would be legitimate. For example, one organization assisting with the program in Montana told us that they spent a lot of time in the early stages of the replacement program convincing potential beneficiaries that the pilot was not a scam. In Washington and Maine, where some community action agencies had already replaced dilapidated homes, they told us that trust in the larger program was not a significant issue.

Unwilling to take on any debt. One official in Maine and an organization assisting with the program in Montana told us that some potential beneficiaries, especially among the elderly population, were just not willing to take on new debt regardless of the poor condition of their home, and there were no loan terms under which they would accept a replacement home.

Unwilling to move from their current location. Older manufactured homes are typically smaller than new ones, so many replacement homes were larger than the homes they replaced. In some cases–– particularly when homes were located in older manufactured home parks––the replacement homes would not fit on the lots. In some cases, organizations assisting in programs told us that they were able to find another location, but it would have required a move to a new school district, which caused some potential beneficiaries with school- aged children to choose not to participate in the program.

Unwilling or unable to pay tax increases. Some potential beneficiaries may be unwilling, or unable, to pay the increased property taxes that would result from the increased value of their homes. For example, a Maine official described a situation where a potential beneficiary’s home was built in 1957 and had no taxable value, so property taxes were assessed solely on the value of the land. After replacement, the sales value of the new home would be added to the land value, and the beneficiary’s property taxes would have tripled. Because this potential beneficiary could not afford this tax increase, he or she chose not to participate.

Officials from all three pilots also identified other challenges that were primarily logistical in nature. For example, a representative assisting the Montana program told us that it was difficult and time-consuming to find suitable replacement homes within a reasonable distance to transport them to beneficiaries. In addition, in Maine, where the homes to be replaced were required to have been built before 1976, officials told us they faced difficulties in confirming the date of construction of some homes. Officials from all three pilots told us that some of these logistical challenges would translate into higher costs. For example, officials in Washington and Montana told us that many of their administrative costs were not covered by the program funding. These officials told us they were willing to take on these costs under a pilot, but that their administrative costs would have to be covered if the pilot became an ongoing program. A representative assisting the Montana program told us that some replacement homes were damaged during transport, leading to additional costs. In addition, representatives knowledgeable of the replacements in all three states told us that some replacement homes required unforeseen additional ad hoc construction such as wheelchair ramps or updates to utilities.

Energy Savings Alone Did Not Fully Offset the Costs of Replacing Older Manufactured Homes, but Replacements May Have Had Other Benefits

In the three replacement pilot programs we examined, the energy savings alone were not sufficient to fully offset the costs of replacing older manufactured homes, but program officials told us that these programs were not specifically focused on doing so and that they had health and welfare benefits for beneficiaries. Specifically, the two programs that maintained information on energy use and estimated savings spent an average of about $56,119 per unit to replace each older manufactured home and estimated about $489 in annual energy savings per home.

The average cost of replacement homes varied across the three programs we examined. The least costly program we examined was Montana’s, which replaced some older manufactured homes with used, but newer and more energy efficient models, with an average cost of about $42,339 per home. Maine’s replacement program was the most costly but replaced homes with new Energy Star-qualifying homes, and cost about $62,024 per home. Officials from all three programs noted that the costs of a specific replacement can vary widely depending on whether other site-specific steps are required, such as installing foundations and upgrading utilities. Because of the varied costs, and the varying extent to which programs tracked and recorded those costs, we were not able to consistently compare total replacement costs across programs. Table 2 provides a comparison of the number of replacements, cost per manufactured home, and estimated annual energy savings, where data were available.

Officials reported that the replacement homes in these programs were significantly more energy efficient, resulting in improved quality of life for the beneficiaries and significantly lower projected energy costs on a square foot basis; however, officials in all three states said these energy savings alone were generally not sufficient to pay for the cost of the replacement over a typical loan period. In the case of Maine and Montana, where some beneficiaries paid a monthly payment toward the cost of their replacement homes, those payments may slightly reduce the total cost of the program. However, in both cases, officials told us that those payments were so small that they had little impact in offsetting the overall total replacement costs across the program, though they may have offset the costs of a specific replacement.

In addition, we analyzed costs and projected energy savings for individual replacement homes where data were available, and we found the data confirmed that the energy savings were not sufficient to recover the costs of replacing the homes over a typical loan period.Montana—where the average replacement cost was $42,339—the average projected energy savings on a replacement home were estimated to be $1,070 per year. In Maine—where the average cost was $62,024, the post-replacement energy savings were approximately $240 per year. Newer manufactured homes are often larger, so the total annual home energy costs increased for some beneficiaries; which may account for the lower average energy savings in Maine, where all replacement homes were new. For example, there were six cases in Maine where annual home energy costs increased by at least $300 per year after replacement, and three of those six cases increased by more than $500 per year. According to Maine officials, these could have been cases where a beneficiary’s existing one-bedroom home was replaced by a new, two- or three-bedroom home. Nonetheless, there were eight cases in Maine where annual energy costs decreased by more than $500. Officials overseeing the program in Washington state did not track estimated or actual energy savings and, as a result, we were not able to examine those figures for Washington. Washington state officials told us they did not collect data on home energy costs before and after replacement because the programs were focused on improving housing and not on energy savings.

In addition, these state-funded replacement programs were not designed to help save LIHEAP funds. Because the eligibility for and level of LIHEAP benefits are determined primarily by income, replacing older manufactured homes does not eliminate the beneficiaries’ eligibility for LIHEAP benefits. State officials informed us that, in virtually all cases, the beneficiaries of the replacement programs continued to qualify for and receive LIHEAP benefits. As a result, the replacement of older manufactured homes with newer, more efficient homes may not eliminate the need for assistance to recipients in paying their energy bills.

Nonetheless, state officials told us that these replacement programs were not specifically designed for energy savings to offset replacement costs, and some officials told us that energy efficiency gains were secondary to the health and welfare benefits of getting occupants into safer, more weather-tight manufactured homes. Program officials cited less measureable benefits of replacement, including fewer trips to the doctor, greater physical security; improved safety in the home, especially for vulnerable beneficiaries; and strengthened community identity. For example, they told us that beneficiaries of replacement homes reported being sick less often, reducing the beneficiary’s health bills and—as all beneficiaries were below the poverty level—public health costs. State program officials we spoke with had not quantified these benefits.

Agency Comments and Our Evaluation

We provided a draft of this report for review and comment to HHS. HHS provided technical and clarifying comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional committees, the Secretary of Health and Human Services, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please contact me at (202) 512-3841 or ruscof@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff members who made major contributions to this report are listed in appendix I.

Appendix I: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, GAO staff who made key contributions to this report were Jon Ludwigson, Assistant Director; Michael Kendix; Alison O’Neill; Cheryl Peterson; Kelly Rubin; James W. Turkett; and Jarrod West.