A new study finds that higher percentages of wealthy, Asian, and white residents live in HOAs; and people pay a premium of about 4 percent for homes in HOAs.

Homeowners love to complain about homeowners associations, or HOAs. The seemingly ubiquitous private organizations limit what people can do on their own property, and charge for the pleasure.

But people keep living in them, and now a new study suggests why. Despite their frustrations and costs, HOAs appear to deliver real value to homeowners. Researchers Wyatt Clarke and Matthew Freedman created a database of millions of home sales covering 90 percent of the U.S. population, and found homes in HOAs sell for more money than similar homes outside HOAs.

It’s not that homeowners really love paying association dues or having their lawns regulated. But Clarke and Freedman’s data suggests regulation has something to do with it. In their study, perhaps the first near-national look at the impact of homeowners associations, they found the HOA price premium was largest in areas with less local government—suggesting that homeowners value HOAs when they provide “private zoning” and other regulations ordinarily provided by government.

“There are these positives and negatives associated with HOAs,” said Freedman, an economics professor at the University of California Irvine. “You can see there could be some real value with having HOAs … On the flip side, we don't think people are fully informed about the restrictions they face living in HOAs, and they might also propagate segregation and inequality in a way that we as a society don't view as positive.”

The HOA premium

Using public home listing data for 34 million housing transactions over 35 years, acquired through real estate listing company Zillow, Clarke and Freedman found homes in HOAs sold for an average of 4 percent, or around $13,500, more than similar homes outside of HOAs. (They only looked at single-family-home HOAs, not condominium associations where homeowners collectively own a building.)

That’s a similar premium to the one found by narrower studies looking at HOAs in single cities. Based on the fees HOAs charge to their members—an average of $2,800 per year—Clarke and Freedman conclude that “each dollar paid to an HOA in dues buys about $1.19 worth of benefits.”

Unsurprisingly, given this apparent demand, HOAs are becoming more and more popular. In 1990, around 40 percent of all new homes were in homeowners associations. Today that’s doubled to 80 percent.

Homeowners Associations have become increasingly popular

But the HOA premium isn’t the same everywhere. In some states, people are willing to pay 10 to 15 percent more to live in HOAs, while in other states HOA homes cost about the same or even less than non-HOA homes.

One big difference: The states with big HOA premiums tend to be in the South and West, while smaller-premium states are disproportionately in the Midwest and Northeast.

States with lots of HOAs also have the highest relative prices for HOA homes

HOAs tend to be richer, and with a greater percentage of Asians and whites

Critics of HOAs have attacked them as a “tool for exclusion” that can encourage racial segregation. There’s no available data on the race of the owners of each particular house, so Clarke and Freedman couldn’t test this accusation directly. But they did compare the racial demographics of neighborhoods with or without HOAs, and found that neighborhoods with HOAs tended to be richer and less racially diverse.

Overall, HOA residents are disproportionately more likely to be white or Asian, and disproportionately less likely to be black or another race, than non-HOA residents.

Residents of HOAs are more likely to be Asian or white, and less likely to be black

“This dovetails with some other research that suggests these HOAs may be a way of facilitating segregation, or at least serving as a tool for exclusion of some groups,” Freedman said.

It’s possible this correlation simply reflects the fact that HOA residents tend to be wealthier, and in the U.S. wealth is correlated with race. But Clarke and Freedman did some additional tests that suggest the racial gaps may not be purely coincidental. They looked at three different ways of measuring racial tension—a survey-based metric, a study where people were asked to associate adjectives with faces of different races, and racial composition in 1960, before the rise of HOAs—and found in all three cases an association with HOA demand:

  • In metros where typical white residents had a harder time associating positive adjectives with black faces, HOA premiums were higher

  • In states with lower scores on a racial tolerance index, HOA premiums were higher

  • In metros that had larger black populations in 1960, HOA premiums were higher

All together, Clarke and Freedman conclude that “demand for HOAs is driven at least in part by a desire for exclusion.”

Private government

Race isn’t the only association Clarke and Freedman found to explain why HOAs are more popular in some areas than others. Prices for homes in HOAs were particularly high in areas that have relatively weak local government.

That backs up longstanding theories casting HOAs as a form of “private government,” collecting “taxes” in the form of dues, imposing regulations about how property can be used, and maintaining common property.

In their dataset, metros with lower taxes, lower local government spending, and less land use regulation have higher HOA premiums, while HOAs seem less in demand in metros where local governments are already taxing, spending, and regulating at high levels.

HOA price premiums are highest in less-regulated cities

“This finding is consistent with the idea that HOAs provide ‘private zoning,’ which is most valuable in the absence of public zoning,” the authors write.

Freedman experienced this personally growing up in an HOA in the suburbs of Houston, which “is notorious for its relatively lax zoning laws.”

“When we have a lot of commercial or industrial development close to residential development, there are pollution externalities and traffic externalities,” Freedman said. “People do place some value on having a certain degree of zoning in a particular area. When local governments don't do that, people like it when HOAs do it for them.”

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