Saturday, August 02, 2003

California Law Revision Commission site
After reading the previous post, some people may want to check out the Commission's work product to date. Follow this link to the
California Law Revision Commission.
Remarkable memo to California Law Revision Commission
I can't vouch for the authenticity of this memo, but it looks to be a genuine correspondence from retired Judge Charles Egan Goff to the California Law Revision Commission, the body that is currently considering major reforms to the law governing HOAs in California. Here's the lead, followed by a link to the whole document:

Charles Egan Goff
MEMORANDUM - July 3, 2001

RE: HOMEOWNERS' ASSOCIATIONS - STUDY H-851 Law Revision Commission
JUL 12 2001


In 1791 Thomas Paine wrote in Rights of Man: "Defects of every government
and constitution, both as to principals and form, must be on a parity, be as
open to discussion as the defects of a law, and it is the duty which every
man owes to society to point them out...."

It's a tribute to California's Legislature and Executive that this body
exists to improve their work, even to disagree with it when necessary. So it
is especially an honor for this worshipper of Our Constitution to address

Briefly I beg you to consider turning Homeowners' Associations from purely
for-profit business enterprises into democratic societies,
recalling Madison
's statement: "Justice is the end of government. It is the end of civil
society. It ever has been and ever will be pursued until it is obtained, or
until liberty be lost in the pursuit." (Federalist #52.) This is an ancient
law: "Justice and only justice you shall pursue." (Deuteronomy 16:19.)

My concerns and recommendations are six...

...and on that dramatic note, you are invited to proceed to the full document. I added the italics around the money quote.

Friday, August 01, 2003

HOAs in the American Heartland
I take a certain childish pleasure in having been ridiculed for saying back in 1985 that private residential government was the most significant trend in housing and local governance. One Los Angeles Times reporter--Bob Sipchen, if memory serves--referred to me as a "crackpot." Book publishers told me confidently that homeowner associations were only found in Florida and a few other hot places where retirees congregated in condominiums and played shuffleboard while waiting for Death.

Here's a story from the Des Moines Register, in Iowa. That's IOWA, the landlocked, potato covered, football-crazed center of gravity of the American heartland. Can anybody read this and still underestimate the significance of common interest housing?

Neighborhood property rules for homes a growing trend
Register Correspondent

Residents who live in West Des Moines' Southwicke town homes must keep their garage doors closed, and they can't have big pets. If the town-home owners want to build a deck, they must first get permission from the homeowners association.

Members of Urbandale's Lake Halice homeowners association can't swim in the lake or use gas-powered boats.

Nationally, homeowners associations govern an estimated 80 percent of new homes. More than 55 million Americans are in homeowners associations, according to the California-based American Homeowners Resource Center. Of those homeowners, 75 percent believe the rules that govern their neighborhoods are appropriate.

"It protects us all and keeps the neighborhood beautiful," said Jody Warth, a member of West Des Moines' Heatherwood Association. "The goal is to avoid eyesores. Our neighborhood is a huge green space that works hand-in-hand with nature, and it's because we don't mess around with the natural aesthetics of the area."

Homeowners associations usually are created by the developer or builder and are typically run by an elected board. Common covenants - or property-use rules - cover the signature features of a neighborhood. Rules may include having a specified number of trees planted in the yard, muted colors of siding, requirements on fencing material or type of shingles. Association membership usually isn't optional.

"We do operate essentially as a government," said Jerry Manning, president of Country Club homeowners association in Clive. "You have a governing body, covenants that dictate what the homeowner can do, the power to assess dues and to enforce those dues and guidelines. But that power essentially comes from the people."

The emphasis in the last graph is mine. By all means, read the whole thing...
...and Chris Webster responds to Sarah
Further upgrading the intellectual quality of this blog, Chris Webster (see below) responds to Sarah's comments...

From Chris:

Continuing the discussion...a few thoughts in response to Sarah's comments.

Sarah, your first and second contrasted pictures do not seem mutually exclusive
to me. It may be that municpal government has over-reached itself and this is
why private governance has stepped into the breach. This is not inconsistent
with the private version being riddled with inefficiecies and inequities. The
state steps in to mitigate against private neighbourhood market failures. And so
the iterative process proceeds. If the institutions of demoncracy and
accountability are open, transparent etc, one might assume, (with Karl Popper)
that the social experiment ends up with a net gain to society (forgetting about
the spill-over issue for the moment and just concentrating on the welfare of
those within private communities - the same argument can be developed in respect
of social spill-overs but will have a different conclusion).

Talking about market failure, Oliver Williamson's idea of remediability as an
efficiency criteria is an interesting one (eg Williamson 1999 Public and Private
Bureacracies JLEO Vol 15). Neo classical economists got it wrong by defining
efficiency in terms of utopia (Demsetz 1969 - 'Nirvana economics' JLE Vol 12) -
markets failing when compared to the 'perfect market'. The big mistake there was
to ignore the costs of the government interventions which such analysis
prescribed (the zero transction cost assumption of orthodox economics).
Actually, as Ronald Coase (1964 'The Regulated Industries' AER Vol 12) points
out, 'until we realize that we are choosing between social arrangements which
are all more or less failures, we are not likely to make much headway'.
Williamson's transaction cost approach, while having its flaws, seems a useful
one for exploring the issues of private government. Its emphasis is on
evaluating the match between, on the one hand, the attributes of a particular
set of transactions (for example the transactions between neighbour and
neighbour; home-owner and the agency owning the local public good assets etc)
and on the other, alternative governance frameworks. The sunk costs of the
extant set of institutions (eg. traditional municipal government) should
feature in the evaluation - hence the idea of remediability - do the costs of
creating new institutions outweigh the benefits of change? The costs of the
American urban system turning to private government include the post-contract
adjustment costs of litigation (which are, of course, unkown at the time of
individual home-owner investment but which become more predictable over time).
As these costs become more predictable they can be factored into contracts,
private governance rules and state institutions via special provisions (as Sarah
notes exist in the UK system to protect lesees from forfeiture, for example, or
they can be factored into price (higher price to reflect risk). Either way,
society learns over time how to organise itself to progressively reduce the
costs of competition and conflict over scarce resources.

Sarah Blandy's comments on the NYT article
Sarah Blandy is Senior Lecturer in Housing Law, based in the School of Environment and Development, Sheffield Hallam University, England. She is part of the international network of scholars on gated and private communities. I'm happy to be able to post her comments:

From Sarah Blandy:
Some thoughts from an English lawyer on the NYT article and Chris's response:
- it's an interesting cyclical process if you accept the view that private governance steps into the gap left by inefficient national
government (lack of security and fear of crime) and by inefficient local government (poor provision of services), but then itself becomes
too oppressive and has to be curbed by government legislation;
- I think the above gives a more realistic picture than GCs being a response to / retreat from over-reaching municipal government accreting
to itself neighbourhood level governance functions; - there are checks against corrupt municipal government - and I suppose GCs can be self-correcting in that oppressive officers of HOAs can
be voted out, but this appears not to be happening in the States (is that right?);
- I think the GC phenomenon is culturally determined; American culture seems to be very litigious, but on the other hand a lot of American
cultural values make their way over to the UK sooner or later... but I would be surprised if we saw the same scenarios as in the NYT article
over here. This view is partly based on the difference in property law between the States and England, which means that GCs have a
different legal framework. Here, most GCs are set up on a leasehold basis, and there is a long history of mutually enforceable leasehold
covenants in blocks of flats and in many housing developments - but not a lot of litigation between residents or between management company
and individual residents (there have been some cases); and English law provides considerable protection for leaseholders against forfeiture
of the lease for breach of covenant.

Tuesday, July 29, 2003

Thoughts Provoked by Chris Webster's Comments
I've been saying for 18 years that the governance issues are the Achilles heel of this form of privatization.

Internally, many associations tend to display either too much apathy or too much conflict. Most are under-reserved, and the bottom third of the CID price curve is filling up with first-time buyers who have zilch in the bank, so when major repairs are needed associations tend to borrow the money and using their assessment stream as the security. The incentives work to almost guarantee inadequate reserves--if Americans move every five years on average, why pay today for somebody else's new roof in ten years? Sure, a smart buyer checks out the reserves, but how many buyers are that smart?

Externally, it is still unclear how CIDs are going to be built into the intergovernmental system, other than the fact that local governments like using them as cash cows.

Some state legislatures are indeed beginning to address these issues seriously, but they have had a tendency to focus on piecemeal, micro-management issues, passing laws saying it's OK to fly Old Glory if it isn't too big, or precisely how to handle proxies in HOA elections, instead of addressing the big issues--civil liberties, financial responsibility, secession, tax equalization, etc.

This policy area went from invisible to "Oh, my God," in about ten years--the 1980s. Now those who understand the problems are scared that touching things will make them worse.

Chris laid out the alternatives very well, I think. Maybe things are evolving toward greater accountability and maybe they aren't. We will see. I'd be interested in hearing what others think.
Chris Webster comments on NYT Article
One of the most knowledgeable and perceptive people studying the rise of private local government is Chris Webster, Professor of Urban Planning and Director of the Centre for Education in the Built Environment at Cardiff University in Wales. He has studied gated communities in China and is co-organizer of an international network of scholars studying the rise of private communities around the world, the next gathering of which is in Glasgow, September 18-19, 2003.

Chris has two websites that people interested in this subject should check out. One is, and the other is

Chris has these reactions to the NYT article, and in my view he has framed the issues beautifully:
"I'm a self-confessed neutral in the private governance debate but find the kind
of behaviour documented in Evan's wonderful article as appalling as the
antagonists undoubtedly do. Some of the questions raised for me are: (a) Is this
just a step in an evolutionary process by which society works out an acceptable
institutional framework for governing neighbourhoods effectively. There is
evidence of a process at work, with laws appearing to curtail HOA powers,
requiring them to hold minimum sink funds etc. Such laws are appearing thick and
fast in countries all around the world. Their purpose - to constrain the
competition for shared resources within privately governed neighbourhoods - a
competition that appears to be frequently stacked unacceptably in favour of
powerful members of committees, developers etc. One could assume that in twenty
years time some of the worst excesses of the emerging market in private
neighbourhoods will have been ironed out. (b) Alternatively, will private
neighbourhoods burn themselves out with litigation. In which case, we are
witnessing a market-led social experiment that might end up proving, after all,
that traditional municipal government is in fact a rather efficient
institution. One should ask the question - if municipal bureacracies are such an
inefficient way of managing cities at the fine grained scale (as alleged by HOA
protagonists), why did they emerge in the way they did in the first place? They
must be good at something. c) Related to this - are the transactions governed by
neighbourhood governments (traditional of proprietary) what James Wilson has
called 'Sovereign Transactions' - transactions where the integrity of the state
is at risk. Also, are they charactersed by strong asset specificity? On both
accounts, there may be apriori reason to govern them by bureacracies. (d)
Conversely, have municipal governments over-reached themselves during the past
100 years by accreting neighbourhood level governance functions to their other
bureacratic functions? (e) Is the scenario depicted in Evan's piece a peculiarly
North American phenomenon? Does proprietary n'hood government have to evolve
that way or might it follow a different path in societies with different
cultural values? It is widely accepted in some Asian countries without strong
traditions of modern municipal government."

Sunday, July 27, 2003

Update on Hamilton, NJ, case of POW/MIA Flag
See June 27 Privatopia Papers, below: Pay our lawyer and we'll call it even...
Seems that after all the bad press the association that went after a vet for flying the POW/MIA flag is moving toward what it sees as a reasonable solution: pay the association's legal fees, amounting to $1000, and a $50 fine.
So goes the story...
Heaven or Hell: We Build, You Decide
Homeowner horror stories: Associations are heaven or hell
By Paul Bannister •

To many people it's Shangri-La. Heaven. Paradise.

Everybody's lawn is manicured. No one's gone to an electric chartreuse and fuchsia color scheme. No one's got her granny panties -- or thongs, for that matter -- flapping on a clothesline. No junk cars in the side yard. No sofas on the front porch.

Everything looks wonderful.

To others, it's sheer hell. Hades. Purgatory.

Skip one Saturday mowing the lawn and the Gestapo comes down on you. Four hundred and some houses are the same boring shade of beige. You can't get that nice fresh-air fragrance in your unmentionables. That classic Corvette you were planning to restore got towed away, and your wife has been officially informed that the cute little swing near the front door is a violation punishable by death.

Depending on your perspective, your homeowner's association is either the best of all worlds ... or the worst

Read at, and check the mortgage rates while you're at it.
New York Times Weighs in on HOAs, Quotes Your Humble Correspondent
Homeowner Boards Blur Line of Who Rules Roost
The New York Times, July 27, 2003

PHOENIX — Joseph Haggerty may own the most expensive garbage can in America.

Because he kept it in the front yard, not the back, his homeowners association took him to court for violating community rules. After a four-year standoff over whether neighbors could see it behind a shrub, he lost and was ordered to pay $11,978.75 in fines and legal fees.

For Ralph Blevins, the problem was an unsightly toolshed behind his town house in Raleigh, N.C. His homeowners association removed the shed one night, and Mr. Blevins, a 62-year-old civil engineer, protested by withholding $750 in maintenance fees. The association foreclosed and bought the town house at an auction for just $3,000.

About one in six people in the nation, or roughly 50 million residents, lives in a community governed by a homeowners association, from co-op buildings in New York City to suburban subdivisions. Formed to take care of the small tasks that fall through the cracks of municipal government, like picking up garbage and repainting curbs, some homeowners associations are asserting far broader powers, backed by local courts.

Cities and counties, which are reluctant to raise taxes to pay for services, have in many cases stepped aside, allowing associations to become de facto governments with increasing authority over daily life.

The growth of associations has created "a whole sector of people who don't use public services," said Evan McKenzie, a professor of political science at the University of Illinois in Chicago who has written widely about the subject. Homeowners who live in such communities, he added, "don't need local governments."

Read and download before it disappears...
Prepare to be Assimilated...
Richard White: Get used to the idea of homeowner's associations

Sunday, July 27, 2003

By RICHARD WHITE, Special to the Naples Daily News

Q. When we purchased our home two years ago, it was not until after we signed all the papers and all funds transferred did we find out the home was located in an area with a homeowner's association. Neither the seller nor real estate agents mentioned this fact. We did not want a home in this type of area and now we are stuck. Were any of these people in violation of the law? If so, what can we do about it? S.U. — Miami

A. The obvious answer is to contact an attorney for an opinion. But, that is not the total answer. The fact is that more than 90 percent of all homes resold today are in some type of association. Almost 100 percent of new home are in an association. It is the future of home buying to expect that there will be an association of some type. I wish I could help, but you should have asked the question in the beginning. You could write letters to the real estate offices and boards, but it will not solve your situation. Sorry.

So shut up and go read the rest of the Q & A, Pilgrim.