HOA study shows link between prejudice and ‘weak’ local government

By Deborah Goonan, Independent American Communities

Over the weekend there’s been some internet buzz about a newly released study on homeowners associations in the United States.

The study, The rise and effects of homeowners associations, by Wyatt Clarke and Matthew Freedman, uses information technology and a mathematical algorithm to pinpoint HOA member homes across the United States.

Their comprehensive data analysis points to some unsurprising conclusions. HOA communities tend to be racially exclusive, and HOAs are more concentrated where local governments provide fewer public services, ceding more control to private homeowners associations.

 

Overview of research

Clarke and Freedman analyzed 35 years worth of real estate data for 34 million housing transactions, provided by Zillow. Objective mortgage data was used to identify HOA-governed homes, assigning them to clusters closely correlated by subdivision.

The authors used the data to create a map of HOAs across the country, and claim their map represents 90% of homes in the U.S.

Their analysis of concrete data allowed Clarke and Freedman to compare certain characteristics of HOA vs. non-HOA homes and neighborhoods. The researchers drew several conclusions:

Overall, residents of HOA-governed communities are more racially-segregated than non-HOA communities. The study finds that HOA-governed communities tend to have a higher percentage of white and Asian residents.

On average, buyer pay a 4 percent ($13,500) premium for HOA-governed homes.

The HOA premium is higher in Southern and Western states — perhaps 10-15% — but lower or non-existent in Northeastern and Midwestern states.

The authors attribute higher HOA premiums to relatively ‘weak’ local governments, places that offer fewer public services and minimal public zoning of land use.

 

Are HOAs really ‘popular?’

CityLab reporter David Montgomery published an article about the study last week, entitled HOAs Are Popular Where Prejudice Is Strong and Government Is Weak.

In this author’s opinion, the CityLab title is misleading. HOAs are not ‘popular’ — they’re just very hard to avoid in many parts of the country.

That’s backed up by US Census data, as discussed in this previous IAC post. Consistent with Clarke’s and Freedman’s findings, at least 3 out of 4 new construction homes built and sold in the Southern and Western regions of the US are HOA-governed.

But it’s not because buyers and renters demand HOAs, per se.  Housing consumers face an extremely limited supply of non-HOA neighborhoods with available homes or land for sale.

And, no surprise, that’s directly related to ‘weak’ local governments that don’t bother to create or enforce common sense zoning and ordinances. County and municipal governments continue to collect property taxes, even as they hand over additional maintenance responsibilities and code enforcement to private homeowners’ associations.

In the short term, there’s little incentive for local governments to provide public services, especially when politicians can boast about low taxes. That’s why HOAs are mandated or heavily favored by development planning commissions in many regions of the country.

 

The ‘HOA premium’

As HOA fees continue to rise at a rate faster than home values, homeowners and consumer advocates criticize the widely-promoted urban myth that HOAs protect property values.

Although the evidence of this nationwide HOA study shows that home buyers pay a 4% ‘HOA premium’ at the time of purchase, what does this really prove?

It depends on one’s perspective.

The industry touts the higher purchase price of an HOA-governed as increased ‘value.’ But it’s really just a higher price that makes a home less affordable to buy.

Considering the perpetual cost of HOA fees, in addition to property taxes on homes with higher assessed values, an HOA-governed home is less affordable to own than a home that is not governed by an HOA.

Generally, the lower the local taxes, the more services that are demanded of an HOA. That translates into higher HOA fees. The total amount of money spent on HOA fees plus property taxes can easily exceed the cost of property taxes in a comparable non-HOA burdened home.

As Clarke and Freedman’s data shows, the cost of entry to these ‘exclusive’ communities segregates residency by household income, which is correlated with racial inequalities.

 

Do HOAs divide by race?

There’s no question that at least some residents intentionally seek out HOAs to live among people that share their race, culture, and values. But Clarke’s and Freedman’s study was limited, in that the researchers were unable to analyze data of individual HOA ‘clusters’ or communities.

There’s plenty of anecdotal evidence that minority racial and religious groups of housing consumers also self-sort into planned communities. And age-restricted HOA-governed communities, though waning in popularity, are decidedly exclusive of younger adults and families with children.

And, because the study looked at single family homes, the data didn’t include condominiums and cooperatives. Combined, these two common interest housing categories account for 40-46% of homes in association-governed communities.

Data analysis of condo and co-op sale prices and residency might shed further light on the issue of racial segregation and prejudice.

And a qualitative and quantitative analysis of Covenants and Restrictions as they relate to the racial, ethnic, and religious make up of neighborhoods would be equally enlightening — whether or not deed restricted neighborhoods have an active homeowners’ association.

I hope Clarke and Freedman will continue their research on the effects of homeowners’ associations.

 

HOA trade group responds to Clarke and Freedman study

As usual, Community Associations Institute (CAI) dredges up its own flimsy research, which consists of a half dozen biennial surveys of residents in association-governed communities.

As discussed here on IAC, there’s no conclusive proof that CAI’s survey sample is representative of all residents of HOA-governed properties in the US. CAI doesn’t share demographic data of its survey sample. Therefore, its survey responses could be skewed, even biased in favor of ‘community associations.’

Zillow’s extensive database of home sales, combined with mortgage documentation, is bound to be a more objective, comprehensive representation of single family HOA-governed communities that any trade group’s self-funded survey.

Nevertheless, in its recent press release, CAI points to the following survey statistics as ‘proof’ that HOAs don’t exacerbate segregation.

The vast majority (90%) of community association residents recognize their association’s rules protect and enhance their property values (62%) or have a neutral effect (28%), according to research conducted by Zogby Analytics for the Foundation for Community Association Research. Eighty-four percent of those surveyed expressed that neighbors elected to the governing board “absolutely” or “for the most part” serve the best interests of their communities. Overall, 63% of community association residents say they are “very” or “somewhat” satisfied with their community association experience, with 22% reporting a neutral response.

Source: Community Associations Institute – HOMEOWNERS ASSOCIATIONS PROVIDE VALUE AND BUILD CONNECTIONS BETWEEN RESIDENTS—FOSTERING INCLUSION, NOT SEGREGATION
6/6/2019  –  Falls Church, VA

 

Trade group survey responses not a good defense of HOAs

But…what do these findings have to do with discriminatory preferences of residents? How do these statistics prove that the community association has no measurable impact on housing segregation in the United States?

So what if 62% of residents think the rules protect property values?

And what difference does it make that 63% of residents are “satisfied” with their community?

What can we conclude about the fact that a majority of people surveyed think their HOA board is acting in the best interests of their communities?

None of this loosely-collected survey data proves that HOA residents or board members are not discriminatory.

On the contrary, CAI survey responses might serve as proof that residents who answered the survey are pleased with their HOA’s exclusive restrictions and rules, that have either intentional or disparate impacts on housing segregation.

Most housing advocates have known for many years that discrimination is prevalent in HOA-governed communities, based upon numerous fair housing complaints filed against HOAs across the US.

Now we have some objective proof that HOAs encourage and entrench division between HOA insiders and outsiders. ♦

 

References:

HOMEOWNERS ASSOCIATIONS PROVIDE VALUE AND BUILD CONNECTIONS BETWEEN RESIDENTS—FOSTERING INCLUSION, NOT SEGREGATION
6/6/2019, Community Associations Institute press release

HOAs Are Popular Where Prejudice Is Strong and Government Is Weak
DAVID MONTGOMERY, City Lab
JUN 4, 2019
A new study finds that higher percentages of wealthy, Asian, and white residents live in HOAs; and people pay a premium of about 4 percent for homes in HOAs.

Research source:

The rise and effects of homeowners associations, Journal of Urban Economics
Wyatt Clarke, IBM, United States and Matthew Freedman, University of California, Irvine, United States
Received 7 May 2018, Revised 29 April 2019, Available online 7 May 2019.

Short link to abstract of research paper: https://doi.org/10.1016/j.jue.2019.05.001