Are smaller HOAs really better?

By Deborah Goonan, Independent American Communities

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Wondering what home builders are up to these days? At least one prominent residential developer in Florida is building neighborhoods on a smaller scale.

In a recent news release, Smaller is better is the new trend in construction, explains that, as land becomes more scarce, small communities  are created in a process the industry calls “infill.” Basically, a home builder acquires a relatively small parcel of land adjacent to existing neighborhoods, and then builds smaller subdivisions of 24 to perhaps 120 homes, without the vast amenities of larger planned communities.

I was curious about these smaller communities, so I visited the home builder’s website to find out more. As it turns out, every community has common areas to maintain, such as lakes, preserves, and small parks. Several are advertised as maintenance provided or gated communities. One of the homeowners interviewed for the article boasts that his 112-home community has “housing that is consistent throughout the community.” Read between the lines: an HOA is set up to enforce CC&Rs and architectural standards.

I guess you could call this “HOA – Lite.”

The impression the reader gets from the “smaller is better” article is that HOAs are a given. They are assumed to be as necessary as the roof on each house – as if no new home community could possibly be built without an HOA.

Here’s a link to the article:

Smaller is better is the new trend in construction

The home builder featured in the article, Neal Communities, has been in the business for 40 years. Pat Neal has served in the Florida Legislature (House, Senate, and Appropriations Committees) and maintains strong political connections to Florida’s Governor. The builder’s family complements new home construction with related businesses: interior design, pool and spa construction, and home insurance sales.

In 2015, WWSB, My Suncoast Channel 7 reported on one of the Neal family’s controversial construction projects on environmentally sensitive land.

 

Those facts aside, let’s consider some of the advantages and disadvantages of small HOAs for consumers

Advantages of small HOAs
  • Residents are somewhat more likely to get to know each other in a smaller neighborhood. As one homeowner puts it in the article, a small HOA feels like an “exclusive club.”

 

  • The idea of not paying for collectively owned amenities is a big advantage for homeowners that don’t want to pay for recreational facilities – such as a community pool or tennis courts – that they will never use. In theory, HOA fees can remain low compared to large scale, high amenity planned communities.

 

  • The limited footprint of the neighborhood means there may be fewer acres of common area to insure and maintain.

 

  • If there’s an issue of concern to homeowners, it’s relatively easy to communicate with each neighbor personally. In larger communities, contacting all of your neighbors can be a logistical nightmare, especially if the HOA board and manager resist giving access to contact information for all members.

 

Disadvantages of small HOAs (What the industry doesn’t want you to know)
  • Disputes over selective enforcement – or non-enforcement – of CC&Rs (Covenants, Conditions, & Restrictions) tend to be up-close and very personal. In a small community, it is nearly impossible to avoid running into your adversarial neighbor(s). You’ll probably see them every day you pull out of your driveway or walk your dog. If you have children, they’ll feel neighborhood tensions, too. HOA disputes in smaller neighborhoods tend to get very ugly and confrontational. And if there’s a lawsuit, the conflict can get exceptionally contentious and expensive, too.

 

  • Small HOAs still have common areas to maintain and insure against loss, with costs increasing over time. There will likely be a storm water retention area including one or more ponds or lakes. There will be some green space and a flower bed by the entry monument or sign. If the community is gated, homeowners must maintain the gates and, more importantly, their private roads. When the community is new, maintenance will be minimal, but after a decade or so, the lakes will need to be dredged and roads will need to be resurfaced. But don’t be lulled into thinking it won’t be costly. To a contractor, small communities mean small jobs that usually command a premium price. And the fact that there are fewer members to split the cost means your share of those costs could be substantial.

 

  • If the small HOA provides exterior maintenance of your home, such as lawn care, you’ll still be paying for it. And don’t count on the cost being less than what you’d pay if you just hired your own help to mow your lawn. The small bulk discount you receive from the landscape company is usually offset by your share of the costs of maintaining those common green spaces and flower beds.

 

  • Smaller communities are more vulnerable to economic stress. For example, if 5 homes enter foreclosure in a 30-unit association, the remaining 25 owners will acutely feel the pinch in the form of higher assessments. And if 5 homes are not properly maintained, home values in a small association-governed community are more likely to take a hit. The so-called “specialness” of the HOA can fade quickly.

 

  • It’s extremely difficult to find people able and willing to serve on the HOA board. With a relatively small pool of candidates, some communities may find that no one will take on the role of leading the association. The association can hire a manager, but that adds considerable expense and increases HOA assessments. And, all too often, homeowners will unwittingly hand over their assessment money and unchecked control to one homeowner or a part-time manager.  Quite of few HOA fraud, theft, and embezzlement cases begin when a lone, trusted board member or manager is given easy opportunity to help him- or herself.

 

  • Small HOAs are also more vulnerable to block-busting and rapid neighborhood transition than larger HOAs or non-HOA neighborhoods. For example, an opportunistic investor might purchase several homes over a few years, scooping up homes with distressed mortgages or at estate sales, with the intent of accumulating enough voting interests to gain a seat on the HOA board. Once on the board with sufficient voting power, an investor and any affiliates can vote to steer maintenance contracts to their family and friends, or change the covenants and restrictions, particularly with regard to rental restrictions. Make no mistake, wherever there is a collective pool of cash, and the opportunity to acquire power over one’s neighbors, sooner or later, someone will take advantage of the situation.

 

How about an option for no HOA?

In light of the fact that HOA disadvantages still seem to outweigh HOA advantages, home buyers might prefer no HOA at all.

However, where can a new construction home buyer find a home without the HOA?

A recent report of National Association of Home Builders (NAHB) found that 80% of all new construction is made subject to a mandatory HOA.

If you scroll down to Figure 7 on page 9 of the NAHB report, you’ll read that:

“The survey also contained a question on whether there is a HOA, condo, or other type of community association for the development. Results show that 80 percent of the subdivisions have one of these association types.”

And on page 6, Figure 4, you’ll see that the national median number of homes per subdivision in 2015 was 50. So it appears “smaller is better” is the new normal.

 

But, let’s challenge the status quo

Why can’t new homes be built for consumers who don’t want a gated community, who prefer to do their own yard work or hire their own landscape pro, who don’t value uniform cookie-cutter neighborhoods, and who prefer a “live and let live” community? (And at prices that most buyers can afford – not just millionaires.)

For a small, truly no-amenity community, why is an HOA necessary at all?

How much fiscal impact do small infill subdivisions have on the budget, and why can’t the public sector absorb the relatively minimal level of road, nature preserve, and storm water system maintenance? I have a hunch that many consumers would prefer to pay a slightly higher property tax in exchange for no HOA fees – and the hassles that come with HOA living.

What role do political connections play in granting approval to development plans and construction permits?

Who really benefits from forcing the HOA concept on virtually every new residential development?

These are questions to ask your Governors, your State Legislators, and your local land use and development planning officials. And while you’re at it, be sure to refer to this list of 10 tough questions for opponents of HOA reform.

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