Sunday, March 7, 2010

Private Rights or the Economic Survival of the Community—Which comes First?

            What follows are comments and a post forwarded to the author by Fred Fischer, followed by the response to that post.  The post criticizes private community associations as “un-democratic” and illustrates the growing disconnect between a zealous concern over governance and a real understanding of the basic economic survival issues of community associations. While we understand the arguments, practicality gets our vote because if they don’t survive who is going to care how community associations are governed?

            There is no doubt that privatization (of public property) has increased in the US over the years, but is it constitutional and is it in the best interest of consumers/community? Personally I have little objection to privatization when it applies to some services like refuge collection, snow removal etc. but I do when it applies to housing and other (personal or behavioral) issues.

            Fred then quotes from an article on the growing privatization of communities, and the asserted loss of individual freedom, written by Mr. George K. Staropoli that I have excerpted here:

“This new nation of mini-governments populating the landscape are described by Robert Ely. . . as representing ideas alien to democracy: ‘It is not the American ideal.  It is benevolent, well-wishing feudalism, which desires the happiness of the people, but in such a way as to please the authorities.’…An authoritarian form of government is contrary to the expectations of Americans who have lived all their lives under a democratic government that places the rights and liberties first and foremost.  (Another author) agrees: ‘Perhaps the most distinctive characteristic of these communities is that they are controlled by private, democratic governments (community associations) that wield the kind of control over people’s personal lives and tastes that, heretofore, most Americans would never have accepted from any government.  It is, and still remains, the oppressive, authoritarian HOA government based on corporate law rather than on constitutional law that is the root of all evil.“
My Response:


     Thanks for forwarding that interesting piece. My immediate reaction however, is "So what?" Whether they are "democratic,"  “authoritarian,” or something else; whether they should have been built or not; the fact is that tens of thousands of communities governed by homeowners associations were built over the past 40 years and their authority to govern was established by statute and contract with the approval of all sorts of government agencies, and notwithstanding their imperfections, they can not be easily undone regardless of how much some may dislike them. It does no good to decry their creation other than perhaps to lobby for an alternate form of governance or ownership, for new developments—those with the necessary density and in urban settings--and at this point that alternate form remains unspecified and undefined. I have no problem with criticism of a political, social or economic system, but usually the critique offers some idea of how we would fix them (and I mean with specifics.)  I don't see that here.

     It also does little good to attack the institutions and professions that have arisen to manage and maintain community associations, again, when no alternate suggestions are put forth. Developers and municipalities create common interest developments for the financial gain of each. Managers, lawyers, repair contractors, accountants, and hundreds of other professions are made necessary by a system that was created by others. Yes, they get paid to provide services to these developments, but so do government workers, union members, teachers, doctors and numerous others who get paid to provide a service to their particular customers or constituencies. To attack the symptom with just naked idealism does nothing to fix the problem.

     What will fix the problem is an alternate system that works better, assuming one exists. I haven't seen one proposed yet, despite having read hundreds of pages of criticism like that above. It’s probable that no good alternative exists given that the need for density also requires, like it or not, some system of shared private governance and shared expenses. Municipalities are not likely to foot the bill to administer or maintain private property any time soon.

     And also like it or not, short-term change can likely only be achieved with more--not less--government oversight by municipalities, states, and the feds, since these "private" communities are generally inadequately funded to insure their long-term survival. As it turns out, the FHA (and also Fannie Mae and Freddie Mac) may soon fix this for us despite legislative inaction, by setting minimum standards for community association reserves and funding. Failing to meet these standards will mean no lender can obtain a mortgage guarantee from one of these agencies, and this change in regulation will affect a very high percentage of the sales in community associations.

     This is admittedly administrative, not legislative, action but it will have the same result and will put tremendous pressure on community associations to fund adequately. Those that do will have a reasonable chance of a longer life with adequate resale values, at which time we can worry about whether their governance is too unyielding. Of course, many will fail to meet these mandatory standards just as they have failed to meet the voluntary ones, which will mean that properties in those developments will be largely unsalable, leading to further declines in value and funding. If they continue on that track they will eventually become uninhabitable and local governments will then have no choice but to condemn them. Their mode of governance at that point will be irrelevant.

     Only economic obsolescence will likely change the legal character of existing community associations in the long-term, which brings me to my final point: instead of a negative drumbeat about something that cannot be legally altered and frankly which has little or no effect on the final outcome, we should be focusing on how we can protect the interests of millions of owners who are stuck in a failing economic system which will ultimately deprive them (or their successors) of their homes. I realize this does not paint a particularly pretty picture, but it is the future of many community associations. Protesting a perceived lack of “democracy” while having a compelling ring is like re-arranging the deck chairs on the Titanic. Community associations and their owners would be better off avoiding the iceberg!


  As always you make excellent points, the current system is what it is and privatized governance is here to stay for the foreseeable future.  You may want to send your comments to George Staropoli and ask him to publish them on his blog as a response to America II. Your observations and suggestions are very sound and honest and what we need more of, instead of the marketing hype and whining over the shortcomings of contract governance that have been well understood since America's colonial times.

We are in this together no matter what side of the table we are on.