I'm frequently asked about HOA fees (Home Owner Association Dues) and why they are going up SO fast.

You know the fees. I can remember when $200 a month was the average. Now, just a short while later, increases are springing up everywhere and many condos and townhouse complexes have HOA fees nearing $400.00 a month.

What happened to make costs increase?

The Home Owner’s Association (HOA), controls the rules, regulations and finances of any given condo, townhouse or planned unit development. They set the monthly amount you as an owner pay for the various services they provide. They typically pay for external facility maintenance, grounds maintenance, the pool (if there is one), insurance (hazard, liability, sometimes earthquake), and can also include water, garbage and the like.

The HOA has the unenviable task of providing a full range of services yet keeping their fees at the lowest level possible. And that is the crux of the matter: keeping costs low is almost impossible, given the following three factors:

1.    The Cost Of Building Materials Is Going Up WORLDWIDE:

As you may have noticed, we are in the midst of a war or two. Wars are expensive, and it may surprise you to know where some of that money goes. Into rebuilding. As in fixing what we just blew up. And that takes building materials. A LOT of building materials. Throw in a hurricane or two (eg. Katrina), recent flooding across the nation and the USA housing boom of a few years ago and you are talking a LOT of materials. And then there is the not-so-small factor of the rapid rate of building currently going on in China and you suddenly end up with a world-wide shortage of building materials. That’s right. WORLD WIDE SHORTAGE. And, because we live in a market economy, those things that are in high demand but short supply tend to go up in price. Factor in rising fuel costs … well, you get the idea. HOA fees pay for a tremendous amount of materials each year, from paint to roofing to asphalt and more. And all of the prices are going up. WAY up.

2.    The Cost Of Labor Is Going Up:

In the same way materials are increasing, wages in areas like the San Francisco Bay Area are shooting up as well. It’s really quite simple. Tried buying a house here recently? Even with the lower prices, you need a lot of dough to land a house these days, and people in the trades are doing one of two things to get a home: asking for more money or moving to places like Left Elbow, Idaho. Either way, we end up paying for it. When skilled labor leaves in droves, the remaining few get to charge even more! That’s right … supply and demand. And the last time I looked, HOA fees pay for a lot of labor. Labor that is costing more every year.

3.    The Gubernator:

Arnold is always in the middle of things, and this is no exception. AB 2718, passed by the legislator and signed into law by his royal gubernership mandates that all HOAs maintain a specific level of reserve funds. MANY HOAs were running out of money and passing the hardships onto their members in the way of assessments. HIGH assessments. In addition to rising costs, poor management was also a contributing factor in some cases. Bottom line: the situation was getting out of control and had to be fixed. To comply, many HOAs had to either significantly raise their monthly HOA fees or apply a one time assessment to every homeowner in their complex. In some really bad cases, both were needed to get back on track. We don’t have room to explain this all here, but it’s had the effect of raising many HOA monthly fees.

To add injury to insult, escalating HOA costs have contributed to bankruptcies for some homeowners who have been caught with rising monthly loan payments AND escalating HOA fees. And the trend will continue:

Those HOAs that haven’t raised their rates as of yet will need to do so before too long.

On a larger scale, in some places across our country, foreclosures and the resulting high condo vacancy rates has translated to a lack of income for HOAs, many of which have gone into bankruptcy on their own. This has contributed to the extreme restrictions from the FHA, Fannie Mae and Feddie Mac – condo developments have to meet very stringent guidelines to be able to qualify for certification. No certification, no loans for those trying to buy a condo in that specific development.

HOWEVER, there is a flip side to this.

The same issues affecting HOAs also affect those who own a property with no HOA. The costs of effectively maintaining a single family home have also gone way up. So if you are the kind of person who doesn’t want to worry about routine maintenance, paying insurance, cleaning the pool, mowing the lawn or trimming the hedges, even with increasing costs, a development with HOA fees can still be the best way to go.