Why HOAs are everywhere now.
Once the niche prerogative of gated communities, 80% of new homes now come with one. But why?
This short essay is in response to recent CNBC video on the increasing rise of HOAs.
The video does mention that HOAs enable cities to offload much of their traditional obligations to HOAs. But what was left out was some crucial context on why cities have been forced onto the path of HOAs. 80% of new homes now have HOAs attached to them. But this is not simply because city planners are all just busy-bodies who want to make sure everyone’s lawns are cut to the correct height. And it’s telling that this skyrocketing in HOAs is seen in communities across the country, from deep blue to deep red districts. From north to south, east to west, the same pattern of skyrocketing HOAs is occurring. Ultimately, this isn’t about politics or neighborhood aesthetics. It’s about hard truths and unavoidable fiscal realities.
It's not really surprising, low density suburban development simply doesn't pay for itself. People will bristle at this, but they really have no idea just how expensive all the infrastructure, the roads, the pipes, the sewers, the municipal services, all of it, is. Even in very high tax states, the taxes paid by a low density development don't even come close to covering the costs of a city to maintain all that infrastructure. Urban infrastructure costs are a function of density. The more spread apart everything is, the longer the roads and pipes need to be. And people still expect the fire department to arrive within minutes, whether they're living downtown or in an exurb. The problem with low density suburbs is people want urban amenities with rural densities. They don't want to have to pay for their own well and septic system. They want the security that comes with a municipal police force rather than just a county sheriff. They want a professional fire service rather than a rural volunteer fire department. They certainly don't want to live with gravel roads and open drainage ditches. They want the isolation of rural living, but they don't want the level of self-reliance that comes with rural living.
Usually, cities don't need to pay for the first build-out of new development. All the infrastructure gets built by the developer, and maybe a third of the cost of a new home is just to pay for all the infrastructure to support it. The city gets new taxpayers, but in turn signs up for long-term liabilities. It's essentially a very long-term ponzi scheme. As long as you can keep growth going forever, and ever faster, you can keep robbing Peter to pay Paul. But ultimately it catches up with you. And this is why almost every city in America is broke, has terrible roads, and is sitting on tens of millions in unfunded long-term maintenance liabilities. Republicans will blame vague government waste. Democrats will blame insufficient taxes on the rich and corrupt private contractors. But in the end, you can't politic your way out of basic math.
Really, this is probably our single greatest collective national delusion. We like living in low-density suburbs, but we're also aghast at paying the true cost to support them. We so quickly fall onto lazy explanations and magical thinking, blaming it on whatever bogeyman aligns with our political compass. But ultimately, elect a democrat, elect a republican, elect a fascist, elect a communist. It doesn't matter. You can't politic your way out of basic math.
And this is why cities are offloading their obligations to HOAs. People simply can't handle the truth, that the development pattern they've been raised to consider "normal" is just hopelessly, catastrophically unsustainable at a basic financial level. Any city council that proposed raising taxes to the levels necessary to sustain low-density suburban infrastructure would be run out of town on a rail. And even if they could, there would be mass dislocation as a huge portion of the population lost their homes due to the now crushing tax rates. And we've known about this for a long time. Here's a video from 1967 that specifically mentions that such low-density development is fiscally unsustainable:
We've known for over half a century that low-density development cannot be kept going forever. And yet, today's municipal leaders have to do their best with the terrible hand they've been dealt. They can't raise taxes on existing neighborhoods to the level necessary to cover their costs. So instead, they can at least try to keep the problem from getting worse. When a new neighborhood seeks to join a city, they can require an HOA, which covers much of the maintenance liabilities the city would otherwise be signing up for. It's a very inequitable solution, as new low-density neighborhoods have to pay to subsidize old low-density neighborhoods, but it's often the best cities can do.
Ultimately, the best solution would be to structure property taxes in a way that directly reflects the infrastructure liabilities created by different levels of development. Tax rates on low density neighborhoods should, in an equitable system, be set much higher than those on a high density neighborhood. You can live wherever you want, but you need to pay the taxes necessary to sustain your lifestyle choices. But that would require major state level legislative and constitutional changes, so it's not something cities can seriously consider. HOAs are just a symptom of a much, much larger problem. Or more specifically, they're not really a symptom. They're a crude tool of triage that municipalities are using to try and save the patient bleeding out on the table in front of them.