Political division feeds the HOA industry

By Deborah Goonan, Independent American Communities

debgoonan@cloud.com

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As we approach the 2020 election cycle, it reminds me that housing politics is mostly driven by separate but competing agendas of the real estate industry. Yet, curiously, both ends of the political spectrum lead to the same endgame — new construction of homes in HOA-governed, common interest communities.

Here’s my analysis of how and why political party agendas keep feeding the HOA industry, which limits the supply of non-HOA housing for consumers.

(For the record, I’m an Independent voter.)

 

Conservative Republicans and Libertarians

It’s no secret that most conservatives share a stubbornly anti-government sentiment. Political pundits on the right often argue that, because it is funded by compulsory tax dollars, government has little incentive to perform efficiently and provide good public service.

Their misguided conventional wisdom: government can’t do any job well, and, dollar for dollar, private business will always provide better service and value.

So…rather than making serious efforts to hold government accountable to the people, conservatives have instead spent the past 40 – 50 years systematically privatizing public services.

Nowhere has this destructive trend been more apparent than at the local government level, with the vast majority of new homes governed and funded by private, mandatory-membership HOAs.

 

The push to privatize residential development

Beginning in the 1970s, in response to public pressure to rein in tax increases, local governments handed increasing responsibility and control over local development to private corporations.

This privatization trend was first documented by Evan McKenzie in his book, Privatopia, published in 1996. Numerous other political and housing experts consistently acknowledge that HOA-governed common interest communities are favored by many local governments, because HOAs shift the cost of new public infrastructure and services to future property owners.

In the 1970s and 1980s, as HOAs became the norm for new development, it allowed elected officials to brag about keeping property taxes low.

Of course, that party didn’t last long, as property taxes and HOA fees have been on the rise for at least the past two decades.

 

HOA cash cows vs. housing affordability

Thanks to conservative HOA-industry stakeholders, local elected officials have come to view real estate developers and home builders as drivers of economic development. Big cities, small towns, and counties now count on land developers and private corporations to finance and build the lion’s share of new community infrastructure such as roads, stormwater management systems, water and sewer systems, and underground utility and communications lines.

Meanwhile, over the past several decades, government has all but abandoned new construction of multifamily public housing, including affordable rental apartments, townhouses, and condominiums. The only way “affordable” housing gets built these days is if a developer’s non-profit company cobbles together a combination of taxpayer-funded grants, low income housing tax credits, tax incentives, and subsidy programs.

But the real estate industry and their cohorts in municipal and county government favor new construction of larger, more expensive housing. The reasons are obvious. More profits for developers and home builders. More tax revenue for local governments.

Sadly, local and state government agencies provide minimal oversight of the construction process. They’re more concerned with approving development plans, bargaining for concessions, and collecting hefty permit and impact fees. Much of that administrative cost is rolled up into home prices and passed onto buyers.

All of these factors lead to one conclusion. Local planning and development has evolved into a deeply flawed public-private partnership, often to the disadvantage of housing consumers.

 

Reality check — privatized HOAs aren’t “better” than local government

The truth is, mandatory membership HOA assessments are the functional, “private” government equivalent of taxes.

If you don’t pay your HOA fees, in full and on time, your association has the power to send your account to collections after 60 days, and place a lien on your property. Depending on the law in your state, your homeowners, condo, or co-op association has the power to use several options to collect their fees, plus interest.  An HOA can garnish your wages, evict you from your property, or even foreclose on your home.

In fact, the HOA foreclosure process is often more swift, more costly, and more onerous than a tax sale.

The reality is, HOA developers and volunteer boards have even less incentive to perform efficiently or provide good public service. That’s because HOAs are not held to the same Constitutional standards and constraints as real government.

Plus, there’s little or no transparency in HOAville.

As private organizations — most of them corporations — HOAs don’t have to share their financial records with the public. In fact, HOA members often have to fight for access to records.

Members of the media are rarely allowed to attend meetings of the association or its board of directors. And HOA boards frown upon owners who share audio or video recordings of meetings.

State laws rarely require the HOA board to obtain competitive bids for maintenance, repair, and replacement of common property.

In fact, compared to real government, unaccountable HOAs have more perverse incentives to exploit captive housing consumers for personal gain and corporate profit.

And with little or no regulation of the HOA industry, there’s plenty of opportunity for corruption, fraud, and theft.

 

Liberals, Democrats, and Democratic Socialists

On the other end of the political spectrum, liberals cling to the notion that sharing ownership of property makes homeownership more attainable and affordable. Some also believe that common interest development is absolutely essential to save the planet. They insist that increasing housing density — building houses closer together, attached, or stacked — is more environmentally “sustainable.”

Their erroneous conventional wisdom: that urban development — even in the suburbs — is a superior and more responsible use of land and resources. And, in their view, the only way to make housing affordable for the masses is to build dense housing in common interest communities, especially attached housing such as apartments, condominiums, and townhouses.

The push for multifamily construction, combined with a strong market desire for home ownership, led to the rise of the condominium in the 1970s, and its resurgence in the years leading up the recession of 2008.

 

Selling the public on attached housing

At first, condos were primarily viewed by buyers as convenient vacation getaways or investment properties. But as home costs and mortgage interest rates spiked, buyers began looking for less expensive alternatives.

The real estate industry began marketing condos and townhouses as more affordable, low-maintenance, “carefree” homes. Buyers were — and still are — attracted to the much lower purchase prices. They also like that they may no longer have to mow the lawn or shovel snow.

It’s especially easy to sell single adults on the appeal of a “lock and leave” lifestyle.   And lower purchase prices offer buyers with limited incomes a chance at homeownership.

For home buyers that crave social connections, active adult and 55+ communities sell the consumer on social clubs managed by the association and funded by HOA fees.

 

Coveted amenities

At the same time, developers and new home builders wooed middle class buyers to mixed-used urban and planned suburban neighborhoods, promoting various community amenities as perks and status symbols.

In the 1970s and 1980s, it was common to see new subdivisions and condominium complexes with a community swimming pool. Some new neighborhoods added tennis courts, playgrounds, or sports and fitness facilities. Others offered a common clubhouse or meeting space for social activities.

By the 1990s, developers added more elaborate amenities to some of their larger HOA-governed communities: private lake or beach access, golf courses, equestrian centers for horse lovers, and even fly-in communities with hangars for private aircraft.

Condo builders started adding roof decks, exercise rooms, and 24-hour security staff.

The industry boasted that home buyers would have easy access to a full array of recreational amenities and conveniences that they could otherwise never afford.

Of course, in most cases, shared ownership of multifamily residential dwellings and exclusive community amenities makes HOA-governance a necessity.

Detached homes and neighborhoods without private amenities don’t need HOAs. Perhaps that’s the reason so many HOA-industry stakeholders with liberal political leanings oppose local government zoning for single family detached housing.

 

 

Reality check — HOA-governed common interest housing is often less affordable and sustainable than single family housing

The truth is, mass-produced attached and stacked housing isn’t nearly as glamorous as the posh penthouse or stately brownstone of a fabulously wealthy real estate buyer.

To keep housing “affordable” with lower purchase prices, developers stick to cheaper building materials and boring cookie-cutter designs.

Many “affordable” condos and townhouses have paper-thin walls, low quality siding, leaky doors and windows, roof shingles with a short life span, and sometimes, unsafe balconies.

If condo and townhouse owners want to protect their homes and investments, they must increase fees to up with costly maintenance, repair, and replacement. Soon, the home is no longer affordable.

When condo associations evolve into multiple investor-landlord rental communities,  owner-occupants are usually driven out of their homes, sometimes through forced termination of the association, and conversion of units to rental apartments.

In both single family and multifamily communities, owner-occupants and owner-investors often disagree on the best way spend collective HOA fees. Such domestic and political divisions delay or prevent action, complicating the maintenance, repair, and improvement process. That usually increases the cost of construction and renovation project, due to years of deferred maintenance.

Social clubs and connections falter when communities divide into opposing political factions.

Bottom line: HOA-governed communities tend to have a shorter life span than neighborhoods without an HOA.

The affordability factor decreases as the community matures. Recent research also busts the myth that HOA protect property values.

Because of their high maintenance costs over time, condo and townhouse associations are especially vulnerable to decay and financial insolvency.

In the long run, most homeowners will find their common interest community to be less affordable and less sustainable than a home in a traditional, publicly-governed neighborhood.

 

The great HOA political divide

Did political division in the U.S. led to institutionalization of HOAs, or do HOAs foster political division?

It’s hard to say.

But it’s clear to see that politics and HOAs feed off of one another, only deepening the  political divide.

That’s my view.  ♦