The case against common ownership and mandatory HOAs

By Deborah Goonan, Independent American Communities

As a follow up to yesterday’s blog about the fact that HOA board members are often not qualified to lead a community and manage collective association funds, I want to address a related issue.

The HOA industry is built upon the foundation of common ownership or common interest. The industry often refers to HOAs as “private” communities, but, in reality, they are collective communities – neither public nor truly private. A group of two or more homeowners either jointly owns property or a financial interest in property.

The common ownership or interest varies by association-governed residential community. Condo associations generally share ownership of the multifamily structure or group of structures – everything outside of the boundaries created by interior walls of individual units. Common ownership in homeowners’ associations can be minimal or extensive. Some HOAs share only an entry monument or a single retention pond. HOAs in massive planned communities may share millions of dollars in infrastructure, plus a golf course and country club, or perhaps a marina.

Condo associations may be located within a planned HOA, and therefore its members share interests in more than one association.

It is the common ownership or common interest scheme that has created the need for some way to manage collective real estate interests. This collective association of property owners is a manmade legal corporate quagmire that obligates homeowners to share in the undisclosed liabilities and often exaggerated benefits of living in an Association-Governed Residential Community.

 

Is Common Ownership desirable or necessary?

A Traditional Apartment housing model is a multifamily housing situation where all of the residents are tenants. Usually there is professional management, or a single multifamily property owner that serves as the landlord.

In a condominium association, you have multiple owners with different priorities and values deciding how to finance and manage a multifamily structure (or group of structures) shared by all owners. You also have an inherent conflict between owner occupants and investor landlords who do not live in the condo or condos they own.

That’s a very important distinction.

The reason most traditional apartments seem to stand the test of time is because they are owned by a single person/family/entity, rather than multiple owners with different opinions, levels of skill, and ethical principles. In a traditional apartment complex or even a three or fourplex building, the success or failure of the real estate business investment rests upon market forces — if the landlord provides lousy services and undesirable living spaces, no one will rent there. Word of mouth will cause high vacancy rates.

Where these multifamily projects seem to fail is when the government imposes an “affordable housing” scheme upon private owners and/or when you have collective ownership/management such as in condominium associations. Once you switch the motivation from providing a great place to live in return for market rents to milking the system dry for as long as possible, the resulting reality we now have is predictable.

Individual owners that do not also occupy units are now primarily motivated by maximizing personal profit. Typical results are:

• Owners renting their units will charge high rents while providing minimal maintenance services.
• In some cases, owners collect rent subsidies paid for by tax dollars, also with minimal motivation to provide quality housing, because overall, affordable housing supply remains low.
• Moneyed real estate interests exploit the system by acquiring multiple units. They do so to buy voting power and control of the association board. That is often followed by a hostile corporate takeover, dissolution and forced sale, and displacement of owners and residents.

Housing becomes an exploitable commodity rather than a place to live.

Looking at single family HOAs involving land ownership — there is simply NO reason for an owners’ association to exist, at least not from the homeowner/consumer perspective. Every function that the HOA industry purports to serve can be accomplished more equitably, efficiently, and effectively by a local or regional public governing entity or by private entrepreneurs that collect a fee for service provided on an individual basis.

A public government is subject to Constitutional constraints and to checks and balances built into our system of government. They are subject to scrutiny of a free press and media. Constituents can more easily “vote the bums out.”

Private — or really collective — associations often hide behind the corporate shield to skirt around these fundamental protections of freedom, open communication, and civic participation. The fact that votes in associations are allocated per share of property owned makes these “communities” undemocratic at the core.

The real reason HOAs exist: it’s not for the benefit of homeowners

HOAs benefit developers and service industries that support collective Association-Governed Residential Communities. As long as the Association Governance model of housing exists, those that benefit will continue to push for creation of more of the same. After all, mandatory homeowners’, condo, and cooperative associations provide multiple, endless income streams for developers, management companies, and community association attorneys. At the same time, they create a perpetual financial obligation upon each and every member, regardless of the level or quality of services provided.

Local governments are often wooed by private developers that promise to infuse capital into new infrastructure, and to create a larger tax base. And, let’s face it. In some of the fastest growing metropolitan areas, local governments have been infiltrated by special interests — particularly developers, real estate investment corporations/foundations, and service providers to associations such as management companies and attorney firms. That environment has corrupted and distorted the political process at the public government level, resulting in too many public servants serving their own interests instead of the public interest.

Instead of pushing a housing scheme that contradicts American values of personal freedom and democratic process, we should be working to eradicate the infiltration of special interests into planning, growth, and management of residential housing across the US.

Where do we go from here?

It is the collective nature of ownership that creates the “need” for association-style governance in the first place. Common ownership creates a captive consumer base that is obligated to feed the monster. Do away with common ownership and you do away with the monster.

It’s time to reallocate services now commonly performed by Association-Governed Residential Communities. Here’s a suggested checklist. I invite readers to comment and add to the list.

HOA public interest services best served by unbiased administrative oversight and authority of a public governing entity (rather than a private association run by developers, management companies, or unqualified volunteer homeowners)

Road construction and maintenance, including snow removal
Traffic signs, signals, and traffic control
Storm water drainage control, flood control
Water and sanitary sewage services, water quality issues
Recreation centers (such as for seniors or youths)
Waste management
Parks and playgrounds

HOA Special services best served by private business owners, including small and locally based businesses – let the consumer choose to participate or not, with their own dollars

Landscaping services for privately owned lots
Snow removal from privately owned lots (driveways)
Recreational facilities management (fitness centers, tennis clubs, golf courses, pools, etc.)
Private Club memberships

It is imperative that special services be subject to the free market, and not required or imposed upon a property owner by virtue of where they live!