A recent paper, The Rise and Effects of Homeowner Associations, authored by Wyatt Clarke and Matthew Freedman, presents the first ever (nearly) national estimate of how HOAs affect single family house prices (notably, excluding condo and multi-family), using public data curated by Zillow, Inc. You can find the complete study here.
This post provides the key finds from that April 2019 study.
The nationwide average home with an HOA sells for at least 4 percent more than observationally equivalent homes with no HOA.
The premium diminishes as homes age and that it tends to be higher for larger houses and for homes in smaller subdivisions.
The average HOA dues are within 17% of the typical mortgage
A newly constructed HOA home sells for about 8.3 percent more than an observationally equivalent newly constructed non-HOA home. For each year of age, the HOA premium declines by 0.17 percent. Thus;
a 10-year old HOA home sells for a premium of only about 6.6 percent on average,
a 20-year old home sells at a premium of only 4.9 percent on average, and
homes over about 40 years old sell at close to zero premium on average.
This could reflect differences in the structure and functions of older vs. newer HOAs.
This could also reflect changes over time in the effectiveness of a given HOA in providing public goods at a reasonable cost, changes in the competitiveness of nearby local governments that might be offering substitutable amenities, or changes in the composition of HOA residents as neighborhoods age that might influence the scope of HOA activities.
The HOA premium correlates with local land use regulations and government expenditures in a way that suggests that HOAs are perceived by homebuyers as a valuable substitute for local government.
Homes in larger HOAs tend to have lower premiums than homes in smaller HOAs. This suggests that the value households attach to living in HOAs, including whatever value they provide in terms of highly tailored amenities and perhaps a more homogeneous group of neighbors, is diluted when the subdivision is larger.
Results suggest that HOAs are particularly highly valued in places where local government capacity is more limited and where public spending on police and other public goods is lower.
Homes in an HOA are around 400 square feet larger on average and occupy smaller plots of land.
The average HOA fee listed on Redfin.com is $2,800 per year, comparable to the $2,200 per year paid by the average homeowner in property taxes.
HOA residents tend to be higher income and are disproportionately white and Asian relative to non-HOA residents.
The consensus view among academic studies is that property taxes are usually partially capitalized into real estate prices.
This means that the net effect of raising both property taxes and public expenditures is to lower real estate prices.
The study and most prior related papers argue that HOAs have the opposite effect. Prices of HOA housing are higher, despite the increased costs of ownership from HOA fees.
Findings also indicate that some may value HOAs as an instrument to achieve a level of homogeneity among neighbors not otherwise possible. From a policy perspective, the extent to which HOAs are reinforcing segregation and possibly limiting access to educational and other opportunities for some groups should be an important consideration going forward.
