The Quality of Residential Community Governance: Subdivision (HOA) versus Rental

35 Pages Posted: 31 Aug 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: August 16, 2018

Abstract

Many economists argue that homeowners associations (HOAs) are a promising form of privatization. But critics argue that HOAs suffer from conflict and resident dissatisfaction. However, Demsetz observes that a governance institution may only fail by comparison to some relevant, superior alternative. This paper explores the puzzle of HOA failure by comparing the respective governance incentives of the HOA and the residential landlord. The residential landlord is an alternative to the HOA because both landlords and HOAs provide collective goods and governance to residents. I show that landlords will tend to have longer time horizons and a greater residual claimancy. I argue that federal promotion of HOAs may be the result of rent-seeking by real-estate developers who sought to evade residual claimancy. I conclude that federal support for home ownership should be reconsidered, and that in the future, studies of HOAs should more explicitly compare HOAs to a relevant alternative.

Keywords: HOA, homeowners association, rental, residential, housing

JEL Classification: R31, D71, H00

Suggested Citation

Makovi, Michael, The Quality of Residential Community Governance: Subdivision (HOA) versus Rental (August 16, 2018). Available at SSRN: https://ssrn.com/abstract=3233347 or http://dx.doi.org/10.2139/ssrn.3233347

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

Register to save articles to
your library

Register

Paper statistics

Downloads
23
Abstract Views
192
PlumX Metrics