Instead Of Hating Your HOA, Make Your City Take Responsibility

Homeowners associations (HOAs) are notorious punching bags, shamed for bullying widows to mow the lawn or telling residents what color they can paint their front door. But long before you came to loggerheads with your HOA, a cascading sequence of poor planning decisions put you both in this predicament. And that much-maligned HOA is just the visible part of the iceberg of a systemic problem.

This article was written by Ben Abramson and originally published by Strong Towns.

Beneath the surface are some of the major flaws of the Suburban Experiment, says Edward Erfurt, Strong Towns Director of Community Action. He describes a sequence of deferred responsibilities, which starts with a municipality or county that wants to maximize impact fees and real estate taxes it will receive from a new development while minimizing the budget and services it must commit. This leads to negotiations with developers, who have an incentive to maximize sales revenue in one development before moving on to another building site.

The result is usually a neighborhood built to completion, with many of the duties foisted upon (or granted to, depending on your perspective) an HOA or similar property management structure. Examples of these duties include infrastructure maintenance, snow removal and facilities management. Basically, “all the things that a municipality refuses to accept” when approving a new development, says Erfurt.

There’s nothing inherently wrong with this structure and it has been used in some very successful places, such as Seaside, Florida. At its best, an HOA manages facilities that enhance property values and that residents willingly choose, such as parks and pools. “An HOA is just a covenant agreement on the property,” says Erfurt, and its structure and finances are accessible to all in public records.

Dan Slone, a land-use attorney with Vertical Vision PLC who has worked on contracts between developers and municipalities, says that it’s helpful to understand the historical evolution of HOAs. Many of the earliest versions were overtly exclusionary, with language targeting which groups couldn’t buy into the community. The HOA structure we’re more familiar with today was more a byproduct of suburban development, explains Slone. Two groups were populating these new developments: city-dwellers moving out to get closer to nature, and rural people moving in. Since “both of these groups were seen by some as not necessarily ever having cared for land in a social context,” strict rules were put into place to govern their stewardship. It is this legacy that spawned so many of the aesthetic rules that HOAs have become notorious for.

But there are much deeper issues that can be exposed in an HOA regime. Erfurt cites a case of housing development in West Virginia that badly needed to repair and repave its roads. The estimated cost was $3M, but the HOA’s reserves were only $100,000, and the community couldn’t cover a special assessment that high. The residents were local voters and ignoring their plight would come at a political cost, so the city was left holding the bag.

This case reveals another major flaw in the system. Under a regular municipal maintenance structure, projects are planned and executed in multi-year cycles, with long-term budgeting making funds available when needed. Some developers undercapitalize their HOAs from the beginning, and many HOAs keep fees at levels sufficient for funding ongoing maintenance but have nowhere near the reserves needed for long-term projects. So when it gets to the point where all the roads need repaving, the current residents can be hit with a special assessment to cover major projects that previous generations of owners never contributed to.

In a more benign case, this can happen with swimming pool resurfacing, where current residents are shocked by six-figure repairs. In a more severe case, a development may have its own water treatment facilities with costly maintenance, and a failure could be catastrophic for residents.

Slone says all of this is solvable with an engaged and careful city government negotiating in good faith with a developer during the planning stages. He adds that almost every negative case study comes down to a lack of foresight. Cities can (and some do) put explicit terms in agreements with developers that list conditions in which the city would have to take control of services from an HOA, along with structures to ensure the community pays for its own projects in those cases.

Alas, it rarely plays out that way. Often, city officials work with inherited ordinances that require an HOA agreement for a new planned unit development. So when presented with plans, “Some only look and see, ‘is there an HOA there’? And if there is, and it looks reasonable, they just say yeah,” says Slone.

Or, as Strong Towns founder Chuck Marohn puts it, “They have an opportunity to weigh in on that stupidity and they don’t.”

Erfurt says this typifies the “ticking time bomb” of suburban planning in which so many stakeholders claim a short-term victory while pushing fiscal responsibility to future generations.

For the consumer, once you’re facing an issue, “You don’t have a lot of bargaining position for your one-lot purchase in there,” says Slone. For that reason, Slone and Erfurt say it’s crucial to read all publicly available documents about the HOA and its practices and finances before you buy. Also, ask questions about where your prospective community is on its maintenance cycle of major infrastructure and amenities.

As for their reputation for overzealous enforcement, Slone says these efforts are often misguided. “I have never seen an appraiser come to anyone and say, ‘Hi, your neighbor has pink flamingos in their yard and I’m taking $10,000 off the value of your home’ … It’s not a real thing, except in people’s minds.”