In 2009, CIDA’s founders introduced the subject of the Tipping Point in response to an invitation from the Community Associations Institute (CAI) to submit a proposal for an educational presentation at the CAI’s national convention.
The tipping point thesis was that by 2020 the majority of homeowner associations (HOA) in the United States years would be at least 20 years of age. At 20 years a high percentage of these communities would have reached a point where replacement and renovation of major common elements would be necessary. It was our contention back in 2009 that a lack of replacement reserves, combined with depreciating common areas, would lead to a perfect storm for many older HOAs once it became apparent that the available reserves would be insufficient to pay for the replacement or renovation of critical commonly-owned improvements.
Fourteen years later the tipping point has come and gone but when it arrived it do so in dramatic fashion while the whole world watched in horror as the Champlain Tower South Condominium came crashing down on June 24, 2021. How did we identify a year ten years into the future with near-pinpoint accuracy, you may ask? Consider the following:
Beginning with 2008 the number of new housing starts in the U.S. each year has been less than half the historic high-water mark of 2.06M that was achieved in 2005. As a result of more than a decade of historically low housing production, the nation’s standing housing inventory is aging. The average age of existing homes is getting older, as is the age of the typical HOA. Using information published by the CAI, suggests there are more than 26.9M homes located in more than 349,000 HOAs as of the end of 2019. (1)
Many of these homes are attached dwellings located in HOAs that are responsible for maintaining the exterior of the buildings in which the residential units are located. An even larger number are located in a HOA that is responsible for maintaining a wide variety of site improvements, recreational amenities, and infrastructure-related components.
It is reasonable to suggest that by the end of 2020 two-thirds of the homes, or the HOAs in which those homes are located, will be at least 20 years of age. Many of these homes and communities will be considerably older than 20 years if they are not already. Buyers who purchase homes in HOAs that are more than 20 years of age are faced with added risk. This is particularly true when purchasing condominiums and other forms of attached housing.
The bottom line is that the tipping point has arrived. As expected, a significant percentage of the older communities are struggling with the challenges that a lack of adequate replacement reserves presents. Buyers who purchase homes in these communities are well-advised to be extra cautious when assessing the future cost of ownership. Homeowners who are not able to withstand the financial shock of unexpected expenditures will increasingly avoid these older communities when it is possible. In those instances where it is not possible, buyers may demand a premium by discounting the value of the homes within these communities.
(1) 2018-2019 National and State Statistical Review published by the Community Associations Institute