«AmericAn neighborhoods: inclusion And exclusion Volume 16, Number 3 • 2014 U.S. Department of Housing and Urban Development | Office of Policy ...»
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68 American Neighborhoods: Inclusion and Exclusion Why and Where Do Homeowners Associations Form?
Ron Cheung Oberlin College Rachel Meltzer The Milano School of International Affairs, Management and Urban Policy, The New School Abstract Homeowners associations (HOAs) have proliferated in recent decades as an important provider of local public services, particularly in fast-growing states such as Florida. What explains their popularity and, specifically, their formation? We argue that the location and timing of an HOA’s formation are driven by demand-side, supply-side, and institutional factors. Our data come from the most comprehensive statewide database of HOAs constructed to date. We use a duration analysis framework to explore which factors predict when an HOA first enters a census tract. We find that predominantly White, higher income census tracts obtain HOAs sooner, as do tracts farther from the city center and with higher vacancy rates. When we incorporate local public finance variables into our analysis, we find that tracts in cities where residents spend more on public services are less likely to have HOAs, which suggests that public expenditures and HOA services may be regarded as substitutable.
Introduction Homeowners associations (HOAs) have proliferated during the past two decades; they are emblematic of a broader trend in the privatization of services that are typically thought to be the purview of the public sector. HOAs are appealing to homebuyers for their supplemental services and amenities and also for exclusivity. Residents tend to opt into these associations because they value, and are willing to pay for, more targeted service provisions and, in certain cases, greater control over their local communities. Private developers and local governments view HOAs as a cost-effective way
to provide local services, evade local regulations, and produce large-scale communities. HOAs are popular among residents because they provide valued public services; in addition, houses in HOAs tend to sell at a premium relative to houses not in HOAs (Groves, 2008; Meltzer and Cheung, 2014).
An emerging literature, however, suggests that the existence of HOAs can also affect the social and financial prospects for non-HOA members and their larger host municipalities. Although HOA members do not withdraw in terms of broader civic engagement (Gordon, 2003), HOAs do tend to exacerbate citywide racial/ethnic segregation (Meltzer, 2013). HOAs drive down local government spending (Cheung, 2008b) and decrease the level of local revenues (Cheung, 2010). On the other hand, HOAs are also associated with greater stringency in land use regulation, which demonstrates members’ desire for greater control over their neighborhoods (Cheung and Meltzer, 2013; Rogers, 2006).
Despite HOAs’ popularity and the growing importance of their effects, little empirical research has focused on the nature and extent of their proliferation. How are they distributed across space?
What are the characteristics of the cities and neighborhoods where they tend to form? Have these patterns changed over time? We know for certain that HOAs do not emerge randomly. To answer these questions, we look at the spatial and temporal variation in HOA formation across Florida, one of the states with the most HOAs. Furthermore, we test the relative importance of demand, supply, and institutional factors in explaining their formation. To do this test we rely on a unique proprietary dataset on the universe of HOAs in Florida. We have information on the location, formation date, and size of every HOA in the state, and we supplement these data with information on neighborhood demographics, geographic descriptors, and jurisdiction fiscal positions. Our econometric strategy is based on a survival analysis framework: What demographic, economic, and institutional factors encourage the location of an HOA within a neighborhood? To our knowledge, this article is the first to use a duration model to analyze this question.
Results suggest that race/ethnicity and income are important predictors of where HOAs form.
Census tracts with higher Black population shares take longer to receive an HOA; conversely, higher average income speeds up HOA formation. We also find that HOAs are more likely to form in tracts that are farther away from city centers, that have higher vacancy and homeownership rates, and that have newer housing. Local public expenditures matter as well: tracts located in cities that spend relatively less on public services are likely to form HOAs, which is suggestive of the substitutability between HOAs and local public services observed in previous studies.
The article proceeds as follows. The next section, What Do We Know About HOAs?, summarizes the state of the literature on HOAs and addresses the factors driving HOA formation. The subsequent section describes the survival analysis model, the next section discusses the data, and the next presents the regression results. The final section concludes with a summary of the findings and policy implications.
What Do We Know About HOAs?
In this section we discuss in more detail the history and nature of HOAs. We also summarize the empirical research on HOAs and how they affect local communities and their host municipalities.
What Are HOAs?
HOAs (also known more broadly as Residential Community Associations, or RCAs) govern the operation of housing developments. Members of the HOAs typically pay for exclusive services, organized by the association, which are above and beyond those provided by the local public sector. HOAs are found in planned developments, condominiums, and cooperatives. Although not all HOAs apply to gated communities, all private gated residential communities operate under some kind of HOA. The developer typically establishes the HOA upon erecting the community and then allocates the shares of the HOA as he or she sells the units in the development. HOAs are ultimately incorporated as nonprofit organizations, and homeowners in the community share ownership of the common areas and facilities.1 The HOA also establishes and enforces covenants and restrictions governing land use (Cheung and Meltzer, 2013). Each member pays an assessment (or fee) to maintain these amenities and to provide other supplemental services to the community.