Census data show HOAs present few economic benefits to taxpayers, homeowners, local governments

By Deborah Goonan, Independent American Communities

 

The HOA industry is fond of bragging about the ever-increasing number of association-governed communities and housing units in the U.S., and makes grandiose claims that privatization of services in common interest, association-governed communities provides economic relief to both homeowners and local governments, keeping taxes low and home ownership more affordable.

But does hard data back up those claims?

Let’s take a look at data collected by the U.S. Census, to see what, if any, benefits the HOA industry has bestowed upon American consumers and taxpayers.

Historical statistics for single family home sales in the U.S.

The following Census table provides the number of HOA homes sold, highlighting national and regional trends. As you scroll through the report, you can see the percentage of homes sold in HOAs by region, as well as distribution of HOA vs. not in HOA homes by price range.

On a national scale, approximately 71% of single family homes sold in 2015 were subject to HOA governance, compared to 62% of HOA homes in 2009. However, there are regional differences. While the prevalence of HOA property sales increased significantly in the South and West between 2009 and 2015, the percentage of HOA home sales in the Northeast decreased, and remained relatively flat in the Midwest.

The Southern and Western regions of the U.S. have significantly more new home sales in HOAs than the Northeastern and Midwestern regions.

The highest percentage of non-HOA homes are priced below $200,000.

The reason for this discrepancy is simple. Most non-HOA homes were constructed prior to 1990, many dating back to the postwar era beginning in the 1950s. At that time, the typical American home was much smaller in size, with more modest finishes and fewer modern amenities. Although some of these vintage homes have been updated over the decades, the majority remain smaller and less modernized than new construction. Therefore, sale prices are considerably lower, even though price per square foot is often similar or even higher for updated older homes.

Additionally, beginning in the 1990s, most local governments amended their development planning codes to allow greater density of residential housing, encouraging or mandating HOAs for most new construction of subdivisions.

 

 

What effect has proliferation of association-governed communities had on home ownership rates?

For the following table, scroll down to see that the home ownership rate in 2017 is nearly the same as it was in 1965. Ironically, today’s home ownership rate is even lower that the rate in 1973, the year Community Associations Institute (CAI) was established to help support the HOA industry.

U.S. home ownership rates peaked at 69.2% in 2004, then dropped back to 63.7% during the abrupt housing market correction.

From 1970 to 2015, according to CAI statistics, the number of housing units in some type of community association increased from less than 1 million to more than 26 million. CAI estimates roughly 21 million housing units at the time the rate of home ownership peaked in 2004.

Looking at the big picture and long-term economic trends, it appears that housing policy favoring HOAs has had no net beneficial effect on home ownership rates.

 

Have HOAs kept housing affordable for the masses?

This next table explains why new single family housing has become unaffordable for most Americans. It comes down to size. The average new home today is much larger than it was in 1999.

For example, compare the percentage of new construction homes under 1,400 square feet in 1999 (13%) to 2015 (4%).

Buyers looking for a single family starter home or a downsized home under 2,000 square feet face a daunting challenge. In 1999, 36% of new homes were under 2,000 square feet. In 2015, only 17% of new homes were under 2,000 square feet.

Bigger homes are, of course, more costly to build and therefore more costly to purchase.

The remaining choices for consumers are:

  • purchase an older home that is either in a declining neighborhood or in need of extensive renovation,
  • purchase a condominium, or
  • opt to rent an apartment or single family home.

Many American households are opting to rent instead of purchasing a home.

 

 

Has the construction and sale of HOAs kept property taxes low, or at least stable?

Absolutely not. The following Census information indicates a steep rise in state and local taxes.

In fact, 4th Quarter state & local tax revenue increased 186% from 1992 to 2015.

 

While we are on the subject of taxes, let’s compare individual and corporate income tax revenues collected at the state and local levels in the U.S.

Here are the Census figures for corporate tax collection by state and local governments. Corporate tax revenue has increased 140% from 4th Quarter 1992 to 2015.

 

But Individual Income tax revenue collected by state and local governments has increased by 225% over the same time period.

That’s quite a discrepancy.

 

 

And, as previously reported, HOA assessments have increased at a rate much faster than the rise in home prices, and exceeding the rate of inflation.

Clearly, the rapid rise in construction and purchase of residential property in HOAs over the past 4 decades has not reduced tax burdens at the state and local level.

And homeowners of association-governed housing are generally not entitled to any offset in local taxes for the HOA assessments they are obligated to pay, even though a portion of those assessments relieve local governments of certain public services they might otherwise provide.

 

Many Layers of government, but HOAs not counted among them

Finally, the U.S. has continued to add additional layers of local government, even though CAI estimates there are more than 330,000 association-governed communities now in existence that were supposed to reduce the need for local government services.

Check out this map for an overview:

2012 Census of Governments: The Many Layers of American Government [PDF, 3.5MB]

 

And the following tables from the U.S. Census of Governments:

Total number of U.S. governments at all levels, 1942 – 2012

https://factfinder.census.gov/bkmk/table/1.0/en/COG/2012/ORG01.US01

 

Total number of subcounty General Purpose Governments

https://factfinder.census.gov/bkmk/table/1.0/en/COG/2012/ORG04.US01?slice=government_type~subcounty_general_purpose

 

Note that since 1942, the number of school districts has declined…

https://factfinder.census.gov/bkmk/table/1.0/en/COG/2012/ORG05.US01

 

…but the number of Special Purpose Districts has increased.

https://factfinder.census.gov/bkmk/table/1.0/en/COG/2012/ORG05.US01?slice=government_type~special_districts

 

Type of special district, Census figures for 2012

https://factfinder.census.gov/bkmk/table/1.0/en/COG/2012/ORG09.US01

 

 

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