The cost of living in an HOA is on the rise due to growing operation costs and expenses.
It’s true, according to a recent survey conducted by the Foundation for Community Association Research, which included responses from over 1,000 community association board members, community association managers, reserve study providers, accountants, and other stakeholders of community associations.
“As we witness inflation's impact on the housing market, the results give us a better understanding of how these economic factors are challenging residents and the professionals who serve condominiums and homeowners associations," says Dawn. M. Bauman, CAE, executive director of the Foundation for Community Association Research. “The new survey will be a valuable resource for communities needing to fulfill their fiduciary responsibility to homeowners while determining what products, services, and programs move forward."
The Survey Results
On March 15, 2023 the Foundation for Community Association Research released the results of their "Rising Costs in Community Associations" survey:
In 2023, 91% of community associations responded "yes" to seeing an unexpected increase in expenses due to rising costs and inflation. The same percentage, 91%, said they plan to increase their budget in 2023 due to rising costs and inflation.
The areas that survey participants are seeing increased expenses include management (92%), insurance (91%), maintenance (85%), staffing (74%), landscape services (72%), funding for reserves (64%), businesss partner services (63%), condo safety measures (45%), structural inspections (26%), and accounting services (20%). 76% listed addition increased expenses on "other" areas such as insurance premiums/costs, legal fees, maintenance, construction, and utilities.
How are HOAs addressing the rising cost of living in an HOA?
Survey participants plan to address the unexpected increase in a few different ways. The majority plan to increase assessments (73%), while others plan to reduce expenses (41%), and reduce reserve contributions (15%).
Strategies associations plan to implement to reduce expenses include deferring maintenance (40%), reducing landscaping (31%), reducing legal fees (18%), and reducing amenities (14%). Other responses included renegotiating contracts, prioritizing projects,
investing in energy efficiency projects that will save costs over the long-term,
special assessments, utilizing contingency funds, and exploring bank loans.
How are association management companies responding to the increased cost of living in an HOA?
While 39% of management companies responded that there is no shelf life to their bids and proposals for services, an overwhelming 87% of management companies indicated that they plan to increase their fees in 2023 due to rising material costs, supplies, and other costs. 71% of companies plan to increase by at least 10%, while 19% of companies plan to increase by 11-25%.
Considerations and Best Practices for Community Associations when Addressing Rising Costs?
The report further outlines best practices and considerations for communities when forecasting a financial plan, including current inflation conditions directly impacting condominiums and homeowners associations:
- Inflation erodes the buying power of reserve cash faster than rising interest earned on those reserve funds can increase balances.
- When inflation is greater than financing rates, exploring a loan may be an option to avoid project delays.
- Compounding effects of rising inflation should motivate acceleration of projects, not delay them.
- Impact of inflation can vary greatly by industry and location, especially related to labor and materials.
- Current labor shortage in the community association industry has labor costs rising faster than inflation indices.
- Consult with your professionals (reserve, construction, management) to determine if adjustments to your plans are warranted due to shifting economic conditions.
About the Foundation for Community Association Research
The mission of the Foundation for Community Association Ressearch is to provide research-based information for homeowners, association board members, community managers, developers, and others. Founded in 1975, the Foundation provides authoritative research and analysis on community association trends, issues, and operations, and sponsors needs-based research to help community association stakeholders address specific challenges and prepare for emerging issues.
Learn more about them at foundation.caionline.org.