WHY?

What Are Common Interest Communities (CICs)?

WHY?

MONEY is THE essence of community association governance and operations. If there was no money at stake, nobody would care, covenants would be meaningless and the entire community association phenomenon would cease to exist. Developers, municipalities, attorneys, insurance brokers, management companies and a host of other players all want a slice of the $103+ billion in assessments paid by homeowners every year. It’s all about money: allocated interest, maintenance, repair, replacement, annual budgets, reserves, fines, interest, liens, and foreclosure.

This revolution in the housing market is actually best viewed as a form of local government privatization that is the result of economic incentives impacting real estate developers and local governments. Developers find CID housing profitable, and local governments benefit from a tax windfall in that they receive full property tax payments from CID owners but do not have to provide them the same level of services and infrastructure as other residents. — Evan McKenzie, 1998

WHAT?

Condominiums, cooperatives and homeowners’ associations are all forms of common interest communities (CICs) which are also known as community associations. CICs are hyperlocal, quasi-governmental organizations that bind a group of homeowners (members) to a set of shared requirements facilitated by state law and delineated by a private contract running with the land (or a proprietary lease in the case of co-ops) consisting of a declaration of covenants, conditions and restrictions (CC&Rs) and other governing documents (articles of incorporation, bylaws, rules and regulations, policies, procedures, and resolutions) adopted by each community. Members in condos and HOAs own a separate private real property interest. Members in co-ops own a share of the corporation. Multifamily residential properties where units share both horizontal and vertical boundaries are organized as condos or co-ops. Single-family homes are organized as HOAs (also known as plat communities). Townhomes may be organized as zero-lot-line plat communities or as condominiums.

Some especially more recent state laws require CICs to be organized as a corporation or an LLC, but many existing associations are unincorporated. The common thread for all CICs is mandatory assessments remitted by the members to the association on what is typically a monthly or annual interval and that can range from as little as $20 per year to over $2,000 per month. Those assessments pay to inspect, maintain, repair and replace the common elements (everything from sewers, streetlights and retention ponds to elevators and garages) and for operational expenses such as bookkeeping, management, property insurance, software, staff and vendors. The primary objective of every CIC is to serve its members by properly evaluating costs of governance and operations to approve an annual budget and to arrange for timely delivery of services to effectuate the requirements of federal and state law, as well as county and municipal codes and the association's governing documents. In addition to budgeting and caring for the common elements, associations are often (but not always) statutorily required to conduct annual reserve study, hold an annual meeting and elections of board members, provide proper notice for meetings and other events and to enforce their governing documents.

The business industry estimates that the United States has more than 365,000 CICs with 75+ million residents. View Statistics

Types of Housing in

Common Interest Communities

"HOA" has been colloquilized as a term used for all types of common interest communities, yet HOA describes a particular built environment and governance associated with particular laws. View the community association statute matrix to see the differences!

CICs (cooperatives, multi-family residential condominium associations (COAs), and planned developments AKA homeowners associations (HOAs) and property owners associations (POAs), master planned communities (MPCs), planned urban developments (PUDs)) have ballooned since getting their start in 18th century London. Read History and Structure of the Common Interest Community for an in-depth understanding or, for a more abbreviated history, check these secondary and tertiary references. You might also like to learn about public interest developments (PIDs). Statutes in many states require CICs to register as nonprofit corporations. Community associations are also rooted in segregation.

READ: The Man Who Made the Suburbs White

READ: Giving Up Your Rights to Live in a Planned Community? Yes, It Started in Orange County

In the 1870s, a striking change was occurring in the residential habits of London’s elite. After centuries of living close to the ground in houses, Charles Dickens Jr. (son of the famous writer) observed that wealthy residents were starting “to avail themselves of the continental experience … and to adopt the foreign fashion of living in flats.”

READ: The Design History of London's Mansion Block Apartment Buildings

New York City was one of the first major US cities to develop cooperatives (for the well-heeled). CICs exploded in prominence and quantity starting in the 1960's as they facilitated opportunities for more affordable home ownership (condominiums and co-ops), opportunities to enforce segregation via covenants (a practice that has since been denounced) and as municipalities discovered that they could reduce and/or eliminate their burden of caring for sidewalks, streets, lights, parks, plumbing and more by shifting those responsibilities to private homeowner associations. As of 2021, 82% of new single-family homes sold are part of a CIC / governed by restrictive covenants. What's a single-family home?

Mansion Flat Depiction by Bloomberg CityLab

Bloomberg Big Take: How HOA Fees and Fines Add to the US Housing Affordability Crisis

LISTEN: Bloomberg Big Take: HOA Fees and Fines Can Worsen Housing Affordability Crisis

"The existence of HOAs is something that many local governments actually appreciate. Cash-strapped municipalities like HOAs because developers build roads and parks and pass the costs along to the homeowners. In fact, many municipalities mandate the creation of HOAs in new developments." — John Oliver | April 2023

The developer has to “sell” the project to the municipality, and very often the sales pitch is a version of the following:

“You’re going to get 50 new taxpayers, which will be much more revenue per acre than you’d get from single-family homes, and condos are going to pick up their own trash and they’ll deal with their own security issues. And they probably won’t use your school system because the units are smaller..."

“The city is happy because logistically they know it’s a better deal for them. So the developer gives away all these rights, but the rights they give away are the rights of the future owners, not theirs.” — Jim Morrison | At your service. Or not. In some condo setups, you don’t get what you pay for | Sep. 2022

________________________________

"Beginning in the 1960s, common interest communities have become a major vehicle for shifting responsibilities previously associated with government agencies to the private sector. As fiscal pressures on local governments have increased, these governments have encouraged development of common interest communities. These communities provide substantial and costly public facilities and services which end up being financed by developers of such servitude regimes and, ultimately, by the residents who buy homes and pay assessments to support these amenities. The public facilities provided range from park-like open spaces to streets, lighting, water and sewer facilities and recreational facilities.

Services increasingly provided by common interest communities, but which previously have typically been provided by public governments, include general facilities maintenance, trash collection and disposal, and snow removal. The financial responsibilities of community associations are funded exclusively by the community's residents, who are required to pay regular and special assessments as needed to meet association costs.

There is substantial evidence to suggest that the "load-shedding" of local government fiscal responsibilities onto common interest communities has been a conscious governmental strategy for relieving strain on shrinking resources." — James Winokur | Critical Assessment: The Financial Role of Community Associations | Jan. 1998

READ: When your neighbors become your overlords | Quantifying the Cost of Sprawl | At your service. Or not. In some condo setups, you don’t get what you pay for

Instead of Hating Your HOA, Make Your City Take Responsibility | HOA’s are new standard, per city standards | Why and Where Do Homeowners Associations Form?

HOA asks for city help with sewer system | Condo association asks Deerfield to accept 2 roads as public | City rejects request to take over private streets

Residents in some areas could benefit from trading HOA costs for an increased tax bill | Rough Roads

Plat for The Village at Towne Lake in Woodstock GA - Cherokee County

Excerpt from the Plat for The Village at Towne Lake in Woodstock, GA

Private Government and Public Authority - An Economist’s Look at Homeowners Associations - 110823

COVENANTS: A PROPERTY VALUE DISCREPANCY

Despite years of statements about "maintaining property values" from the CIC industry (via CAI), 2019 research from retired Yale professor Leon S. Robertson concluded that there is an inverse correlation between property value increases for single family homes with covenants (traditionally known as HOAs) vs. those without covenants. Research summarized here.

2014 economics research from Cheung and Meltzer (linked below) compared similar properties with and without the control of an HOA. Properties under association control started with a 4.9% property premium which evaporated after a period of 15 years.

How are homeowners associations capitalized into property values? — Rachel Meltzer and Ron Cheung

Citations from Semantic Scholar

CIC-related statutory governance began with a focus on development in the early 1960's, then shifted to regulating developers in the 1970's and has since evolved a more comprehensive statutory framework in many states through adoption of provisions that are both unique to each state government and also through the Uniform Common Interest Ownership Act (UCIOA) and Uniform Condominium Act (UCA) versions adopted over decades across a handful of states starting in the 1980's).

Straddling both government and corporate realms, CICs face many of the same challenges experienced by those constructs: drafting and revising legislation (written governance), contracting, human resources, budgeting and finance, engaging constituents (homeowners) and more. Volunteer homeowner leaders are under immense pressure to plan and orchestrate a long-term balancing act maintaining physical property and quality of life for residents while simultaneously honoring the boundaries of federal, state and local statutes, codes, and governing documents.

READ: Common Interest Communities: An Introduction — David L. Callies

As highlighted by John Oliver, myriad frustrations and misunderstandings related to CIC living continue to fuel the growth of online forums such as the 230,000+ member r/f*ckHOA on Reddit. Homeowners and tenants find themselves mired in a canyon of discontent and uncertainty some call a "One Way Ticket to Hell" created by stark contrasts between owners' needs and a lack of: education (for all), free and frictionless access to resources with answers and examples, communication, transparency, accountability, and cost-effective, time-sensitive statutory protections from poor governance and operational execution.

Service delivery failures are common amidst the powerful industry-focused norms promulgated by the Community Associations Institute (CAI) trade organization. Unlike other industries where customer reviews, evaluation platforms and public ratings are plentiful, the CIC vendor industry (comprised of managers, insurers, reserve study providers, attorneys, and more) remains a closed ecosystem. Read more about CAI's origin story in CIC Info Bytes Issue #69 - Committed...to What?

READ: Candid CAM interview

Succinct collection of management company reviews compiled by the Better Business Bureau (BBB). Want more? Contact us.

Despite a Number of Differences, Community Associations Share Many of the Same Concerns

Every community association is unique, but most share the same governance needs.

Governance qualities can be relatively easily compared (how many meetings are held, what policies and procedures are in place, how are elections conducted, how long are volunteer director terms, etc.).

Finances are another matter. It's nearly impossible to normalize data inputs between communities because of the myriad factors involved such as: when was a community formed, its construction quality, the scale of homes and/or units, what amenities and common elements are in play, reserve funding, geographic location and pay differences, maintenance quality, decision-making history and governance style of elected volunteers, socioeconomic circumstances, etc. Most of those qualities are neither readily available for analysis, nor cognizable in such a way that one can accurately and intuitively correlate their impact.

Whether formally incorporated or not, you should think of your community as a business corporation.

Homeowners who share a vested interest via their mandatory assessments are much like partners and/or shareholders of your corporation. Alignment with a shared interest is the primary reason many CICs require that Board members (volunteer directors) own real property within the community. The vendors your association engages cannot and will not share the same interest in the overall success of governing and operating your community as your homeowners.

READ: Homeowners Care About Many Things from CIC Info Bytes Issue# 84.

Homeowners and CICs have been led to believe they should trust the businesses that want their revenue, because, essentially, there is no other choice. The United States lacks a sustainably funded nationwide nonprofit primarily focused on serving the best interests of CICs and their homeowners which means that CICs have no spokesperson and homeowners must be their own advocate in all but a few states with dedicated programs.

WANT TO HELP? Join HOA United.

READ: Why So Many Common Interest Communities Need Help | Why Homeowners Hate Their HOAs | Let's Get Honest About HOAs | Assessing the Association Homeowners Think HOAs Aren’t Worth the Stress | New research busts myth that HOAs protect property values | Homeowners, residents dissatisfied with HOA communities...

Susan F. French muses poignantly while comparing CICs to government entities and businesses in Making Common Interest Communities Work: The Next Step (ABA's The Urban Lawyer, Summer 2005, Vol. 37, No. 3, pp 359-369).

CICs have immense power to affect the quality of residents' lives and the value of their real property investments
CICs are more difficult to leave (i.e. moving away from or selling a home) than exiting a business and/or private investment
CICs have relatively invasive restrictions and the enforcement of violations is more likely
Homeowners have little recourse to unreasonable, even illegal circumstances aside from filing suit

The Urban Lawyer - Making Common Interest Communities Work: The Next Step

"Community associations occupy a space that lies somewhere between public governments and private businesses... As common interest communities have become more prevalent, the legal and social challenges they post have become more apparent." — Susan F. French

This is "the rub" and quite likely why you're on this website right now...

"By vesting management responsibilities in an association, the owners overcome most of the collective action problems presented by commonly owned resources." — Susan F. French

IF ONLY this were true! Management has its place, but is NOT a panacea.

"In larger communities, management companies are often hired to relieve the Board of day-to-day operational responsibilities." — Susan F. French

There's no "easy button." As we discuss in Decision-Making 101, the work product of your association's staff and third-party vendors (law firms, consultants, community association manager, etc.) is only as good as the direction, information (facts and context), conversations and questions you exchange.

"Often, there is nobody left to monitor the management company's activities; however, it is pivotally important that Board members monitor these activities. The management company may not be inclined, or able, to look after the interests of the [association] to the same degree as the owner of the units." — Dan S. Barnabic The Condo Bible for Americans

"One problem that remains is that associations are run by an elected board of members (directors) who are not paid for their services, which leads to shirking and free-riding on the willingness of others to serve."

View the Volunteer Involvement Survey:

49% of CICs have an estimated 1% to 5% of their owners volunteer on an annual basis
53% of respondents perceive their personal volunteer time commitment as too much
- 74% of respondents volunteer from 11 to over 41 hours every month (!)
- 63% of respondents expect Directors to perform 10 or more hours of service every month
70% characterize volunteer involvement as not enough
48% say that a majority of volunteer work is performed by 1 or 2 Directors in the absence of material contributions by others