Do H.O.A.s Protect Property Values?

A common justification -- in the H.O.A. Task Farce meetings, here on this forum, and elsewhere -- for the authoritarian and heavy-handed governance by H.O.A. corporations over individual homeowners is that they protect and preserve property values.

But do they?

And if so, is the trade-off worth it?

The evidence is sparse.

We find that houses in HOAs have prices that are on average at least 4 percent, or $13,500, greater than observably similar houses outside of HOAs.

- Wyatt Clarke and Matthew Freedman. "The Rise and Effects of Homeowners Associations". April 2019. (PDF)
and
"The Rise and Effects of Homeowners Associations". Journal of Urban Economics. Vol. 112, July 2019. (PDF)

But ...

HOA-governed properties can also be worth more — one 2019 study found that houses in such subdivisions are worth at least 4 percent more than similar houses outside of them.

“Being in an HOA actually makes your housing value go up,” said Wyatt Clarke, one of the authors of the paper. However, he acknowledged most of that value is captured by the developer, and that over time, that extra value diminishes as properties age and houses start to turn over. “The fact that you’re in this unit, over time, becomes less and less valuable,” he said.

- Emily Stewart. "When Your Neighbors Become Your Overlords". Vox. April 20, 2023.

Another study that same year -- 2019, five years ago -- came to the opposite conclusion about homeowner associations and home values.

Curious as to whether HOAs actually affect home prices, I looked up studies by housing economists to see if any had researched the issue. I found a few conflicting studies on the relation of house sales prices to HOAs but none that properly accounted for the change in prices from previous sales correcting for other factors that could affect changes in prices.

So I examined the recent sales of a sample of 900 homes where data were available and calculated the change in prices from previous sales in urban counties of three states, including Pima County. When I calculated the average percent return on investment (APR) and corrected for inflation and home characteristics (acreage, square footage, etc.), I found that the median APR was significantly lower in HOA neighborhoods than in others in most years, particularly if the house was bought in the 1990s or after the Great Recession.

The data show that HOAs are not protecting home price appreciation and they may be reducing it.

- Leon S. Robertson. "Are HOAs Worth It?: A Look At The Numbers Show They Might Not Help Home Values". Green Valley News. June 12 2019

Abstract: Housing developers’ claims of benefits led to exponential growth in neighbourhood homeowners associations in the U.S. during recent decades. Sanctioned by state laws, association rules governing homeowners are usually initiated by developers who claim that the rules protect property values. But the claim is not supported by empirical analysis. Inflation adjusted annual percentage returns in consecutive sales of a sample of 900 most recent home sales in Duval County Florida, Pima County Arizona and St. Louis County Missouri during late 2017 and early-2018 were examined. The results reveal that the annual percentage returns on homes sold in homeowners associations were significantly less than those of homes in other neighbourhoods statistically controlling for property characteristics and prevailing economic conditions at the time of the original purchase.

Conclusion

The data in this study do not support the widespread assumption that homeowners associations protect property values more than neighbourhoods without such organizations. Indeed, the opposite is true. Increase or decrease in property values are mainly a function of changing economic conditions but financial returns on properties in homeowners associations are significantly lower than those outside such associations, particularly if purchased in years during the economic recovery after recessions. State and local laws that sanction homeowners associations and allow their coercive practices based on the premise of property value preservation are ill founded.

- Leon S. Robertson. “Correlation of Homeowners Associations and Inferior Property Value Appreciation”. Critical Housing Analysis. Vol. 6 No. 1, February 17 2019. (PDF)