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How are Homeowners Associations Capitalized into Property Values?

Rachel Meltzer and Ron Cheung

July 2012, English

Private homeowners associations (HOAs) levy binding fees and provide local services to their members. Both should be capitalized into the value of the member properties, but the net effect is ambiguous. We construct the most comprehensive, longitudinal database to date on homeowners associations and their host municipalities for the state of Florida and estimate the impact of HOAs on property values. We run hedonic regressions separately for incorporated jurisdictions and unincorporated county areas, to account for different regulatory and tax regimes that could influence property values and the likelihood of HOA formation.

Results suggest that properties in HOAs sell at a premium that hovers around seven percent. The premium is strongest immediately following HOA formation and then declines over time, which suggests quick capitalization of HOA benefits into housing prices. Properties in larger HOAs sell for less, as do properties in more regulated municipalities. In addition, price effects do not depend on the municipality’s reliance on property tax revenues, but they do depend on the extent to which it dedicates expenditures to neighborhood services. Finally, properties located immediately outside of an HOA sell at a premium relative to other non-HOA properties, and this premium marginally increases in the size and frequency of neighboring HOAs.