NCPA - National Center for Policy Analysis

WHAT ARE PRIVATE GOVERNMENTS WORTH?

January 11, 2006

Today, nearly 54.6 million people in the United States live under some form of neighborhood association, and their numbers are growing as a majority of new housing units in rapidly growing urban areas are privately governed, say Amanda Agan and Alexander Tabarrok of George Mason University.

Private governments such as homeowners associations (HOAs) and condominium cooperatives seem to have passed the market test, but not without controversy. Some residents chafe at restrictions imposed by HOAs, while others are upset that HOAs don't have to operate under the one-person, one-vote rule; however, the main issue is whether or not HOAs affect property values, say Agan and Tabarrok.

A study of HOAs in five zip codes in the Washington, D.C., suburban area of Prince William County, Va., from the years 2000-2004 found that:

  • The mean sales price for houses within HOAs ($255,580) is actually lower than the mean price for houses without HOAs ($313,130).
  • But after controlling for internal housing characteristics and the year of sale, houses in HOAs are 6.1 percent more valuable than similar houses located outside of HOAs.
  • When further controls are introduced, like house style and location effects, HOAs raise house value by 5.4 percent; overall, HOAs increase value by at least 5-6 percent.
  • The typical house within an HOA sold for $255,000 and membership in an HOA increased house value by nearly $14,000.
  • Additionally, consumers value a three-bedroom home in an HOA about as much as a four-bedroom home without an HOA.

Even though HOAs increase house value, many questions remain unanswered. A continued study of HOAs may help to identify how and why local governments are failing to maximize returns for their residents and the knowledge provided by private governments could be used to improve services, say Agan and Tabarrok.

Source: Amanda Agan and Alexander Tabarrok, "What are Private Governments Worth?" Regulation, Fall 2005.

For text:

http://www.cato.org/pubs/regulation/regv28n3/v28n3-2.pdf

 

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