Monday, March 20, 2017

Census data show HOAs present few economic benefits to taxpayers, homeowners, local governments – Independent American Communities

Census data show HOAs present few economic benefits to taxpayers, homeowners, local governments – Independent American Communities:

This is an interesting analysis of census data by Deborah Goonan. You can access the original data here.  She tries to get to the truth of several claims by the industry:

"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."

Her goal is to see if these claims are supported by census data. Her answer is, "no." See what you think. 

But there are other things in the data that are beyond dispute, some corroborated by other data. For example, the overwhelming majority of new housing in this country is in some sort of community association. The National Association of Home Builders did their own survey, and they compare the census findings with their survey as follows:

"When analyzed by intended use, 72 percent of new homes “built for sale or sold” in 2015 were in a community association, up from 63 percent in 2010. Among “contractor-built” homes (built on owner’s lot with owner hiring a builder or a general contractor), 23 percent were within a community or homeowner’s association (up from 21 percent in 2010), and only 12 percent of “owner-built” homes (owner acts as the general contractor) were within a community association, essentially unchanged from the 13 percent reported in 2010. Another source of information on this topic is NAHB’s recent survey on the Typical American Subdivisions. One of the questions asks 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."

Note that community associations are 72% to 80% of new housing built by developers, but only 12 percent of owner-built homes.  So the notion of people voluntarily choosing association living, one of the common myths perpetuated by the industry, is clearly disproved. CIDs are a solution to supply-side problems, not the result of consumer demand. Developers and local governments have taken the choice out of the housing market. 

18 comments:

pvtgov said...

Thanks Evan for clarifying the tons of data on this issue. We need more solid analysis to correct "alternative facts" and "fake news."

pvtgov said...

Let me clarify. The special interests specialize in alternative facts and fake news.

robert @ colorado hoa . com said...

pvtgov wrote …Thanks Evan for clarifying the tons of data on this issue.

George, it was Deborah Goonan, not Evan McKenzie, who did the analysis.

robert @ colorado hoa . com said...

Deborah Goonan wrote …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.

Does “state and local taxes” include other sources of tax revenue, such as sales tax and income tax? If not, you need to make that clear in the text.

Also, how much more would property tax rates have increased if not for the owners of H.O.A.-burdened housing subsidizing the taxes of non-H.O.A.-burdened households?

robert @ colorado hoa . com said...

Deborah Goonan wrote …HOAs present few economic benefits to taxpayers, homeowners, local governments”.

According to the Cato Institute, in “What Are Private Governments Worth?” (Regulation, Vol. 28 No. 3, Fall 2005):

-’Private governments’ such as home-owners associations and condominium cooperatives provide all manner of collective consumption goods, from road maintenance, trash collection, and snow removal to transportation, policing, and medical care. These organizations were practically unheard of in 1960, but today some 54.6 million people in the United States live in various neighborhood associations. That figure continues to rise each year because a majority of new housing units in rapidly growing urban areas are privately governed. Local private governments are also becoming common in Britain, Spain, Brazil, and even in several former and current communist nations, including Russia and China.” (p. 14)

-Homeowners associations (HOAs) would seem to have passed the market test” (p. 14)

-Theory does suggest that HOAs increase home value.” (p. 14)

-developers of HOAs have incentives to minimize special interest politics and can do so in part by designing constitutions with property restrictions, super-majority voting, and quorum rules.” (p. 15)

-Langbein and Spotswood-Bright find that associations that provide more services have lower sales prices, even after holding fees constant. We should be suspicious of any empirical model that produces results at such variance with economic theory and common sense.” (p. 15)

-Holding all else equal, we estimate that consumers value a three-bedroom home in an HOA about as much as a four-bedroom home without an HOA. We suspect that most people consider this a significant increase in value, which helps to explain why HOAs have become so popular.” (p. 16)

-The increase in house value caused by HOAs is especially remarkable when one considers that residents of HOAs pay twice for many local services — once in taxes and then again in HOA fees. It is also worth noting that we find that HOAs increase value by at least 5–6 percent. Competition tends to push prices down to marginal costs, so as the privatization of local government continues, the estimated price-premium may fall even as consumer benefits from HOAs increase.” (pp. 16 - 17)

-CONCLUSION. Local private governments are expanding in number both in the United States and around the world. Local private governments are also expanding in scope, with many offering private security and a few even offering services such as day care, schools, and courts to arbitrate homeowner disputes.” (p. 17)

-Our data indicate that houses in HOAs in Northern Virginia are worth, on average, more than 5 percent more than similar houses in the same neighborhood but outside of HOAs. Given those large advantages, it is not surprising that HOA s are growing rapidly.” (p. 17)

-Studying HOAs may also help us to identify how and why local governments are failing to maximize returns for their residents. Ideally, the knowledge provided by private governments could be used to improve services for everyone.” (p. 17)

Deborah Goonan said...

The Cato Instititute performed One study, isolated to one part of Virginia. The study has never been replicated or expanded upon in different contexts. Irrelevant.

I also question the objectivity of the researchers and the study itself.

As for how much more taxes might have increased without HOAs, that question is only meant to distract from my point. Hypotheticals.

There is ample evidence that privatization of US residential communities has resulted in excessive profit taking on the part of the majo stakeholders real estate industry. In the meantime, across the country, maturing HOAs are now ceding control of infrastructure maintenance back to the public sector, and recognizing cost savings in the process. As I become aware of these examples, I post them on my blog.

Most of my readers find my blogs via Google search. The feedback has been overwhelmingly positive, so I know people are reading and sharing the information. And that is the point -- to provide documented information from reliable sources, and analysis of that information, in order to provoke thought, encourage discussion, and obliterate marketing hype and misperceptions about common interest communities.

The debate on privatization needs to consider the service that needs to be delivered -- is there a competitive market? Is there elastic demand for community based services -- ie. can residents freely choose to opt out of these services? Is it possible to make a profit providing the service without gouging consumers?

In the case of Association Governed Housing, more and more evidence reveals the answers to those questions is NO.

Deborah Goonan said...

Here is a Harvard Business Review article that explains:

https://hbr.org/1991/11/does-privatization-serve-the-public-interest

Does Privatization Serve the Public Interest?
John B. GoodmanGary W. Loveman
FROM THE NOVEMBER-DECEMBER 1991 ISSUE

Some excerpts:

For decades prior to the 1980s, governments around the world increased the scope and magnitude of their activities, taking on a variety of tasks that the private sector previously had performed. In the United States, the federal government built highways and dams, conducted research, increased its regulatory authority across an expanding horizon of activities, and gave money to state and local governments to support functions ranging from education to road building. In Western Europe and Latin America, governments nationalized companies, whole industries, banks, and health care systems, and in Eastern Europe, communist regimes strove to eliminate the private sector altogether.

....
This growth of privatization has not, of course, gone uncontested. Critics of widespread privatization contend that private ownership does not necessarily translate into improved efficiency. More important, they argue, private sector managers may have no compunction about adopting profit-making strategies or corporate practices that make essential services unaffordable or unavailable to large segments of the population. A profit-seeking operation may not, for example, choose to provide health care to the indigent or extend education to poor or learning-disabled children. Efforts to make such activities profitable would quite likely mean the reintroduction of government intervention—after the fact. The result may be less appealing than if the government had simply continued to provide the services in the first place.

...


It is significant that the firms that specialize in LBOs have organizational features that differ dramatically from the corporations they acquire. These key criteria—rather than the simple category of ownership—account for the difference in performance and prevent the waste of resources perpetuated by the preceding management.

1. Managerial incentives tie pay closely to performance. There are higher upper bounds, bonuses are linked to clearly identified performance measures such as cash flow and debt retirement, and managers have significant equity stakes.

2. The organization is more decentralized, as incentives and ownership substitute for direct supervision from headquarters.

3. Managers have well-defined obligations to debt and equity holders. The debt repayments force the distribution of cash flow, and cash cannot be transferred to cross-subsidize divisions.



Deborah Goonan said...

More from the HArvard Business Review article on privatization -- and as you read this, consider how it applies to common interest, association-governed communities. In many markets, the privatized model has a de facto monopoly -- it it mandated by local governments. Furthermore, community management is such a low margin business that CAI continuously seeks ways to nickel and dime consumers with additional fees and services. The large management companies are buying up the small mom and pop operations, building and every bigger corporate empire and adding on affiliated vendors and services - for which they received an incentive (kick back) that is certainly not serving the public interest.

The major criterion is easy to specify: privatization will work best when private managers find it in their interests to serve the public interest. For this to occur, the government must define the public interest in such a way that private providers can understand it and contract for it. The best way to encourage this alignment between the private sector and the public interest is through competition among potential providers, which may include governmental entities. Competitors will take it upon themselves to respond to the expressed wishes of the citizens.

The city of Phoenix’s experience with garbage collection, described by David Osborne and Ted Gaebler in their forthcoming book, Reinventing Government, illustrates the crucial role played by competition. In 1978, the mayor announced that the city would turn over garbage collection to private firms. The Public Works director insisted that his department be allowed to bid against the private firms, even though the city had promised not to lay off any displaced Public Works employees as a result of contracting out. After losing in four successive bidding opportunities, in 1984, Public Works employees introduced a series of innovations that resulted in costs well below those of private firms; and the Public Works department won a seven-year contract for the city’s largest district. By 1988, Public Works had won back all five district contracts. The central lesson from this experience, says Phoenix city auditor Jim Flanagan, is that the important distinction is not public versus private—it is monopoly versus competition.

robert @ colorado hoa . com said...

Evan McKenzie wrote …Her goal is to see if these claims are supported by census data. Her answer is, 'no.' See what you think”.

Even though I’m inclined to agree with Deborah, I find her analysis unpersuasive.

Your three paragraphs about developer-built homes vs owner-built homes was much more informative and relevant than her 30 paragraphs complete with charts.

robert @ colorado hoa . com said...

Deborah Goonan said…Most of my readers find my blogs via Google search. The feedback has been overwhelmingly positive, so I know people are reading and sharing the information. And that is the point -- to provide documented information from reliable sources, and analysis of that information, in order to provoke thought, encourage discussion, and obliterate marketing hype and misperceptions about common interest communities.

* sigh *

Every H.O.A. blogger says they have a large audience. Maybe that’s true, but the lack of discussion in the comments sections on their various web sites suggests otherwise.

But even if their audience is as large as claimed, they have been unable to translate those numbers into action, even if that action is mere slacktivism. For example, five years ago George Staropoli — who has been at this a lot longer that most — created an on-line petition to “Defend the Citizenship of All Americans Living in HOAs”. You can read his accounts on his blog:

- “White House Petition to Defend US Citizenship of People in HOAs” (November 21, 2012)

- “You Were Given a Thanksgiving Gift — the White House HOA Petition” (November 22, 2012)

- “A Sad Lesson Revealing the Apathy for True HOA Reforms” (January 11, 2013)

He managed to obtain only 76 on-line signatures.

At the same time, a petition to “Secure Resources and Funding, and Begin Construction of a Death Star by 2016” obtained 34,435 on-line signatures. Be sure to scroll down and read the White House’s response

This Isn’t the Petition Response You’re Looking For
The Administration shares your desire for job creation and a strong national defense, but a Death Star isn't on the horizon. Here are a few reasons:
- - The construction of the Death Star has been estimated to cost more than $850,000,000,000,000,000. We're working hard to reduce the deficit, not expand it.
- - The Administration does not support blowing up planets.
- - Why would we spend countless taxpayer dollars on a Death Star with a fundamental flaw that can be exploited by a one-man starship?


Read the whole thing. It’s actually pretty clever, and demonstrates that the White House official who wrote the response was knowledgeable about the topic.

And then think about that: the Obama administration spent more time and effort on a fictional space battle station than it ever did addressing the plight of owners and residents of H.O.A.-burdened housing. Now we have a president who made his fortune building H.O.A.-burdened housing, and a Congress that is blatantly pro-corporate and actively hostile against the interests of consumers. Good luck effecting any meaningful reform in the current political climate with your blogs.

On the bright side, maybe President Trump will actually build that Death Star, and make the galaxy great again…

Deborah Goonan said...

Robert seems to believe that because his personal efforts have failed, no one else's efforts can ever be good enough to make a difference.

Poor him.

I, for one, am not going to let that discourage me.

But if the primary source of comments on this blog are going to continue to be adversarial and non-productive, I won't waste my time here.



robert @ colorado hoa . com said...

Deborah Goonan wroteHas 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.”

robert @ colorado how . com said…how much more would property tax rates have increased if not for the owners of H.O.A.-burdened housing subsidizing the taxes of non-H.O.A.-burdened households?

Deborah Goonan said…As for how much more taxes might have increased without HOAs, that question is only meant to distract from my point. Hypotheticals.

Seriously?!

You claim that in a world with H.O.A.-burdened housing, property taxes have increased 186% over a quarter of a century. If property taxes would have increased by X%, where X ≠ 186, in a world without H.O.A.-burdened housing, then that is extremely relevant. Maybe H.O.A.-burdened housing didn’t keep property taxes low, but perhaps it kept them lower, by shifting some of the tax burden to a sub-set of owners in the form of H.O.A. fees.

I thought the how / if construction of H.O.A.-burdened housing has affected property tax rates was a central basis of your thesis. If not, what is your point?

Deborah Goonan said...

I just don't buy into the notion that property taxes would have been even higher had it not been for association govern communities. Furthermore there is a growing trend of association govern communities with aging infrastructure that they cannot afford to repair or rebuild. More and more of these communities are either choosing to create tax district or to annex to a nearby municipality. There are several reasons for this: economies of scale, availability of no interest financing over 20 to 30 years, access to engineers and large scale contractors that can do the work required. Most associations are relatively small, and cannot absorb the cost of doing major repairs, and it is certainly better to avoid taking out a high interest loan from a bank. Also most contractors are not interested in doing small jobs. And associations may have difficulty locating expert such as engineers and general contractors to oversee the work. And if there's a management company involved, and they steer the work to their "experts" you can bet that the invoice will be padded considerably. So generally, even though the homeowners taxes will increase, their HOA fees should remain stable, and decrease. In some cases, the HOA can be illuminated if owners so choose.

For the typical homeowner it's the overall cost that matters, so one has to look at adding up the cost of taxes plus the cost of HOA fees, and compare the total paid by HOA owners versus non-HOA owners. And evidence is pretty clear that HOA owners are paying more than non-HOA owners. overall it's an effective tax increase, with "double taxation and "occurring for HOA owners.

Deborah Goonan said...

Due to Siri malfunction, there are some errors in the previous comment:

Corrections:

There are several reasons for this: economies of scale, availability of LOW interest financing over 20 to 30 years, access to engineers and large scale contractors that can do the work required."

So generally, even though the homeowners' taxes will increase, their HOA fees should remain stable or even decrease. In some cases the HOA can be ELIMINATED (not illuminated) if owners so choose.


robert @ colorado hoa . com said...

Deborah Goonan said…Robert seems to believe that because his personal efforts have failed, no one else's efforts can ever be good enough to make a difference. Poor him.

No, not just because my personal efforts have failed. But because other efforts have failed, too.

Evan has talked about and written about this repeatedly in the past. If I recall correctly — and he can correct me if I’m wrong — H.O.A. reform efforts failed for a few reasons :

the lack of a well-defined agenda and lack of well-defined goals

ego; activists are more concerned with receiving attention and credit than in affecting real change

the failure to organize and act collectively; legislatures don’t respond to interested individuals, they respond to interest groups.

To that list I would add

the inability to persuade

failure to learn from the mistakes of others

I don’t see any of the above changing any time soon, if ever.

Are the owners and residents of H.O.A.-burdened housing better off today than they were five years ago? Ten years ago? Fifteen years ago? No matter how much whatever it is that calls itself an H.O.A. reform movement tries to fool itself, the answer is “no”.

What are the reformers going to do different this time? Blog harder?


related : “HOA Critics: Proposed Missouri Legislation Won’t Protect Homeowners” (03/06/2017). “Thoughts on Micropolitics and Macropolitics” (03/15/2016).

robert @ colorado hoa . com said...

Evan McKenzie wrote…Note that community associations are 72% to 80% of new housing built by developers, but only 12 percent of owner-built homes. So the notion of people voluntarily choosing association living, one of the common myths perpetuated by the industry, is clearly disproved. CIDs are a solution to supply-side problems, not the result of consumer demand. Developers and local governments have taken the choice out of the housing market.

A friend of mine recently moved. When looking for his next house, one of the things he told his realtor was “absolutely no H.O.A.”, due to having seen what years of being abused by an H.O.A. corporation did to me.

Here’s an idea for a study:

Survey realtors, and ask them (1) how many of their clients have told them they were looking for non-H.O.A.-burdened property, and (2) how many of their clients told them they specifically wanted H.O.A.-burdened property.

Then survey homeowners with the same questions.

Also look at real estate ads, and compare the ones prominently adverting “No H.O.A.” vs the ones prominently advertising “H.O.A.”. For an example, look at the video advertisement for this townhouse in Houston, and notice the opening title:

1815 Indiana, Houston
3 bar, 2690 SF
No HOA
$589,990

via #NoHOA on Twitter.

For any Ph.D. student looking for a thesis or any other social scientist looking for an idea to write about, H.O.A-burdened housing represent a gold mine of data waiting to be tapped. Actually, I'm surprised there hasn't been more academic work in this area (aside from some guy in Chicago; Evan something or other, I can't remember his name right now).

robert @ colorado hoa . com said...

Deborah Goonan said…I, for one, am not going to let that discourage me. But if the primary source of comments on this blog are going to continue to be adversarial and non-productive, I won't waste my time here.

How do you plan to advance your agenda — whatever that is — if you refuse to engage ideas with people who generally agree with you? The audience is a lot tougher once you get outside of the echo chamber, and start dealing with people who vehemently disagree with — if not outright hate — you.

Preaching only to people who agree with you? That is a waste of your time.

example: I posted my “eliminate H.O.A. fines” comment at www.reddit.com/r/HOA/comments/66wrwd/ over the weekend. It was immediately downvoted (~30% upvotes and ~70% downvotes). The comments on that forum so far have been the usual B.S. about “contracts” and “the H.O.A. is the owners”, along with something about Obama and the nanny-state.

It reminded me that, after all of these years, we still don’t have a good response to many of the H.O.A. industry’s talking points. It's as though whatever it is that calls itself an H.O.A. reform movement just expects to be greeted as liberators by the oppressed homeowners, if only we can get them to read our blogs.

Deborah Goonan said...

Believe me, robert, I post my articles and comments on plenty of discussion forums populated with many who disagree with me. In fact, that is how I got started learing about HOAs and how I began doing my own research and writing. You have no idea how much discussion and how much listening and monitoring goes on behind the scenes. 90% of my time is spent gathering information, listening, discussing and debating, and observing, not writing.

A significant number of my readers and followers hold opposing points of view. I am not an ideologue preaching to fellow ideologues.

I do not wish to waste my time arguing with people who claim to be on the same side of the issues. I would rather spend time here productively discussing solutions.

If I want to get into mock debates with Devil's Advocate, I will email you personally. The best way to prepare for a public debate is to practice in private, so as not to alert the opposition to your political strategy and talking points before they are solidified.

And I would not consider commenters on reddit to be representative of the general population. Reddit tends to be chock full of internet trolls.

By the way, I like your suggestion for a research survey of realtors vs. owners. But keep in mind that Realtors have to sell all of these homes in HOAs, condos, cooperatives, warts and all. If 80% of their listings are HOA, there is no way most Realtors are going to publicly criticize HOAs, unless they plan to go into another line or work. It might be more enlightening to survey FORMER Realtors:)