Cookie Cutter Covenants: Regulation-Induced Homogeneity of Homeowners Associations

35 Pages Posted: 12 Jul 2018 Last revised: 10 Sep 2018

See all articles by Michael Makovi

Michael Makovi

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics; Texas Tech University - Free Market Institute

Date Written: June 18, 2018

Abstract

Several authors have argued that homeowners associations (HOAs) constitute an ideal institution for implementing Buchanan and Tullock's Calculus of Consent. HOAs provide collective goods and mitigate collective action problems. Developers offer constitutions ready-made, economizing on the decision-making costs which render unanimity infeasible. Competition will constrain real-estate developers to offer exactly those constitutions which consumers themselves would have crafted. However, critics of HOAs have voiced a variety of criticisms. For example, they allege that HOAs often suffer from a high degree of conflict and consumer dissatisfaction. I argue that government regulation – especially FHA mortgage underwriting – has homogenized HOAs, reducing the scope for competition and product differentiation. Developers often adopt legal boilerplate, lifting their HOA contracts from government handbooks. This reduced competition undercuts the economic justification of HOAs. To some degree, the flaws and shortcomings of HOAs may owe themselves to regulatory-induced homogeneity.

Keywords: Homeowners Association, HOA, Isomorphism, Calculus of Consent

JEL Classification: R30, D70, B53, H00

Suggested Citation

Makovi, Michael, Cookie Cutter Covenants: Regulation-Induced Homogeneity of Homeowners Associations (June 18, 2018). Available at SSRN: https://ssrn.com/abstract=3194419 or http://dx.doi.org/10.2139/ssrn.3194419

Michael Makovi (Contact Author)

Texas Tech University, College of Agricultural Sciences and Natural Resources, Department of Agricultural and Applied Economics ( email )

Box 42132
Lubbock, TX 79409-2132
United States

Texas Tech University - Free Market Institute ( email )

Box 45059
Lubbock, TX 79409-5059
United States

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