Homeowners and Condo Associations: Why are we so obsessed with property values?

By Deborah Goonan

Previously, I have written about the fact that various types of Property Owners Associations (HOAs, COAs, POAs, Cooperatives, etc.) are, in fact, corporations sanctioned by their states.

In effect, the corporation – usually created by a developer – becomes a “business” entity, legally binding all members (property owners) to preserve the Association’s mission, policies, and continued existence through mandatory financial contributions.

Unlike voluntary neighborhood associations or civic groups, whose purpose is to promote the general welfare of residents and unite to solve local political problems, the mandatory HOA has an entirely different focus: preserving property values.

For just a moment, let that thought sink in. The stated primary purpose of Homeowners’ Associations is to preserve property values, rather than to promote and preserve the general welfare of all residents.

Have you ever stopped to consider how and why local governance of communities has shifted from focusing on the value of its people to an obsession with property values? Let’s look at the facts:

• Consider that 80% of new construction now requires the establishment of HOAs by real estate developers. HOAs are not generally created by current or future residents of any particular community. Of course, the developer’s primary motive is to generate maximum profits from construction and sale of homes. Home construction is a for-profit business, and property values reflected in sale prices directly impact the developer’s profits.

• At the same time, an increasing number of real estate buyers have become more interested in the investment potential of property rather than its value as a great place to live. Many investors generate revenue by renting their property, waiting for values to rise before they decide to resell and cash in on their equity. Other investors buy distressed properties, fix them up, and flip them for a quick profit. For investors, property value is all about the sale price, too.

• Leading up to the most recent housing crisis, while home prices were rapidly rising, millions of homeowners were led to believe their property values would (and should) continue to rise. As a result, many owners tapped into that equity, increasing their sensitivity to downward pressures on home prices. But when real estate prices began to plummet in 2008, millions of homeowners lost all of that equity and ended up owing the lender more that their home was worth. In fact, according to Zillow, more than 15% of homeowners are still “under water” with negative equity.

The reality is that, for most of us, our home is primarily a place to live. It’s much more than a financial commodity subject to the whims of fluctuating economic conditions.

Ironically, research has shown that Americans are relocating much less frequently than they did in previous generations, and that the average buyer stays in a home for 13 years.

Presumably, for the vast majority of owners, price stability, long-term affordability, and quality of life in the home and community are greater concerns.

But the corporate structure of Association-Governed Residential Communities imposes businesslike obligation upon homeowners, specifically designed to maximize profits for a very small portion of the population that is heavily invested in real estate. All of it hinges on the elusive goal of perpetually maintaining property values. These obligations include:

• Maintaining a particular uniform, thematic, or pristine appearance for the exterior portions of the property, even as the structure of the community matures and tastes change

• Unconditionally agreeing to all current and future covenants, restrictions, and rules dictating acceptable uses of an owner’s property

• Guaranteeing full and timely payment of all foreseeable and unforeseeable financial obligations of the Association, now and in the future

• Yielding one’s private property and individual rights to the greater, collective rights of the Association (corporation)

• Acceptance of a hierarchical structure of the Association, where the Board of Directors has relatively unlimited power and authority over homeowner members

• Acceptance of relative instability of governance each time there is a transition in Board leadership

In other words, as a member of a homeowners’ or condo association, residents are mandated to cater to the property rights of a few, while sacrificing individual rights. After all, corporate culture is fundamentally incompatible with Democratic culture. Unfortunately, in many real estate markets around the country, buyers have very few alternatives.

Perhaps you could say that the national obsession with property values has been imposed upon us, like it or not.