At a recent webinar, Prof. Christopher Serkin of Vanderbilt Law School made an interesting argument. He pointed out that a) Sun Belt cities tend to have less restrictive zoning than northern cities; b) Sun Belt cities also have more homeowners’ associations (HOAs) with restrictive rules; and therefore (c) perhaps zoning reform will fail because homeowners will react to restrictive zoning by creating more HOAs, which will limit density and housing supply just as much as zoning.
It seems to me that this argument has some weak links. The most obvious is that it is not clear that the correlation he points out really exists. Admittedly, northern and midwestern states have fewer HOAs than the rest of the nation. In the Northeast, only 29 percent of new homes are part of HOAs, as opposed to 47 percent in the Midwest, and 2/3 in the South.
But not all southern and western states are the same- and if we go state-by-state, the correlation between HOAs and strict zoning starts to disappear. In particular, California metros are notorious for strict land use regulation and high housing costs. But 64.9% of California homeowners belong to an HOA, well above the national average. In fact, only three states (Vermont, DC and Florida) have higher HOA participation rates than California.
On the other hand, Texas metros tend to be less restrictive, but only 1/3 of Texas homeowners belong to a HOA. Similarly, only 15 percent of Tenneseee homeowners belong to an HOA. So its not quite clear that metros with lower housing costs and/or less zoning have higher HOA participation rates. ( On the other hand, this data would be more useful if we were able to a) distinguish between new subdivisions and the rest of the housing market, b) distinguish between HOA participation rates for owners of houses and of condos, and c) get metro-by-metro data).
But let’s assume for the sake of argument these percentages were reversed: that high-growth, low-regulation Sun Belt metros consistently had higher HOA participation rates than more restrictive metros like those of coastal California. Would this mean that homeowners preferred HOAs as a substitute for weak zoning? Not necessarily, for two reasons.
First, it might be the case that in states with lots of unused suburban land, there are more big new subdivisions, and that developers may have more of an incentive to create HOAs in such subdivisions. (By contrast, I’m not sure a builder would have much incentive to create restrictive HOA rules for a subdivision of five or ten homes, since any positive effect of these rules might be canceled out by whatever happens a block or two away). Thus, the HOAs would be a result of the new housing rather than a result of zoning policies.
Second, HOAs aren’t necessarily a result of pure consumer preference. Municipalities, especially in low-tax states, may have an incentive to favor HOA subdivisions because HOAs might pay some expenses that, in older neighborhoods, are paid for out of tax revenues (e.g. street design).
A final note: even if HOAs a) did increase housing prices in low-regulation metros and b) were more widespread in those metros than in high-regulation metros, the lower hosing costs in the low-regulation metros suggest that HOAs are not as harmful as zoning.
