Will Developers Stop Building Common Interest Developments?
Of course, these commentators’ understanding of the legal framework of
homeowner associations can be a little thin and hence their opinions
often lack practical application, but the passion is clearly there. I
have read many times that we should (somehow) restrict or ban this type
of housing altogether. I can empathize with some of the frustration that
they feel because it is obvious that community associations are
often creatures of convenience for developers and municipalities rather
than organizations with their eventual owners in mind. They are created
under laws enacted by state legislatures that respond more to the notion
that we need to build more affordable housing now than to the idea that
it has to be practical to maintain and manage in the long run.
Regardless, boards, managers, and vendors inherit the real-life
responsibility for these projects no matter how flawed they may be in
concept.
But for now, the pundits' prayers may be answered—at least for a little
while. Rental, rather than owned, housing seems to be the real estate
concept du jour. And of course, rental housing does not come equipped
with a homeowner’s association. That’s not the same as banning them
outright as some politically naïve souls might like, but it probably has
the same practical effect—you will be able acquire affordable housing
without the drawbacks of an association of owners to weigh you down and
interfere with your constitutional rights.[i]
And
many of the same developers will create these apartment projects, but
there the landlord will enforce the rules. And there are rules to be
sure, and protesting their enforcement will not be so easy, but at least
it will be a straightforward business proposition that is being
enforced, not something that can be decided by, OMG, a vote of the
members. Condominiums are apartments with a modicum of democracy.
Apartments are, well, apartments. No democracy to fret over, just the
lease to govern your relationship with the landlord. Try protesting the enforcement of those rules and see what happens.
But regardless of your political persuasion about community
associations, it will be moot if the new trend toward developers
building apartments rather than condos, continues. And it is a real
trend. The Wall Street Journal recently carried two articles documenting
this trend. The first entitled “Demand for Rentals Drives Big Rise in
Home Building” cites an upturn in housing starts in November, 2011 but
qualifies that news with the statement: “Much
of November’s increase came from the construction of
apartments…evidence that rising demand for rental housing has encouraged
developers to begin building again.”[ii] This trend is explained further this way: “It’s not as easy to get a home as it used to be…There are credit issues for buyers.”
The article goes on to identify the next “boom” in housing as being
multi-family (rentals) as opposed to single-family construction by
traditional developers of single family homes like Toll Brothers and
Lennar Corporation. The article concludes:
“With the return to rationality in mortgage lending one can think of
this as the beginning of a long overdue reversion to the mean.”
What that means of course, is what we have written about before[iii],
that many people who could not really afford to buy a home are now
being evicted from that owned housing and are turning to rentals—an
unhappy, but nevertheless economically inevitable turn of events. The
trend has been visible for a while now, especially as new mortgage
lending guidelines begin to have a profound effect on the purchase of
new homes.[iv]
The second article in the WSJ discusses this same building trend by traditional developers of commercial properties: “Some
of the leading U.S. developers of malls and office properties are
moving into the apartment business, where demand for new projects is
stronger than any other commercial real estate sector.”[v] The article cites many of the same factors as the one above: “More
Americans have been opting to rent in recent years as the allure of
owning a home has diminished, due in part to tight lending restrictions,
falling prices, and rising foreclosures.”
This trend may not have a permanent effect on the creation of community
associations, especially in the condo market, since I suspect that a
great number of these new projects will be built with a condominium plan
recorded so that when and if the for-sale market recovers, they can be
sold as condos, albeit a used building—a problem in and of itself if the
conversion occurs too many years down the road.
The big impact on community association creation, however, may be from
the lack of construction of new single family developments. This is
where homeowners associations take the greatest heat from pundits of all
sorts since their role is largely confined to enforcement of behavioral
and architectural restrictions—the areas of enforcement that create the
most friction between associations and their members.
In
any case, if creating fewer community associations answers the prayers
of some of the bloggers who write about such things, then this new trend
should bring them some joy—at least temporarily.
[i]
That assumes, of course, that the Constitution has any legal
application to a typical community association based, as it is, on
Contract, not Constitutional Law.
[ii] Robbie Whelan, “Demand for Rentals…’ The Wall Street Journal, December 21, 2011.
[v] Pruitt and Wotapka, “Big Developers Dabble in the Apartment Market,” The Wall Street Journal, December 21, 2011.
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