The Private Neighborhood: Will Homeowners Associations Lead to a Revolution in Local Government?

By Nelson, Robert H. | Regulation, Summer 2004 | Go to article overview

The Private Neighborhood: Will Homeowners Associations Lead to a Revolution in Local Government?


Nelson, Robert H., Regulation


For most of American history, the standard form of housing has been the single home or apartment that is owned or rented by an individual household. If there was a need for collective action among individual homeowners, that need was met by a local government in the public sector. Local governments provided public services such as the construction and upkeep of streets, garbage pickup, and law enforcement. Following the introduction of zoning in the United States in 1916, local government also regulated the interactions among individual properties that could significantly affect the quality of the surrounding neighborhood environment.

Since the 1960s, however, this historic role of local governments has increasingly been privatized at the neighborhood level. In 1970, about one percent of all Americans belonged to private community associations. By 2004, more than 17 percent belonged to a homeowners or condominium association, or were part of a cooperative--and very often those private collective ownerships were of neighborhood size. Since 1970, about one third of the new housing units constructed in the United States have been included within a private community association. The Community Associations Institute estimates that, nationwide, more than 50 percent of new housing units in major metropolitan areas are being built within a legal framework of private collective ownership.

This privatizing of the American neighborhood over the past 40 years represents a fundamental development in the history both of local government and of property rights in the United States. The rise of private neighborhoods, as Steven Spiegel wrote in a 1998 law journal article, is achieving "a large-scale, but piecemeal and incremental, privatization of local government."

NEIGHBORHOOD ASSOCIATIONS

There are three main legal forms of collective ownership of residential property: the homeowners association, the condominium, and the cooperative. In a homeowners association, each person owns his or her home individually, often including a private yard. The homeowners association, which any new entrant into the area is required to join, is a separate legal entity that holds formal title to the "common areas" such as streets, parks, recreation facilities, and other common property. It also enforces neighborhood covenants with respect to the allowable uses and modifications of individually owned homes and other structures. The individual owners of neighborhood properties are also automatically the "shareholders" in the homeowners association who collectively own the assets and control the actions of the association.

The other leading legal instrument for collective ownership of residential property is the condominium. In a condominium, all the individual owners have title to their own personal units and, as "tenants in common," automatically also share a percentage interest in the "common elements." The common elements can include things like dividing walls, stairways, hallways, roofs, yards, green spaces, golf and tennis clubs, and other parts of the project area exterior to the individually owned units.

Despite the somewhat different legal arrangements, the operating rules and methods of management for homeowners associations and condominium associations generally are quite similar. As shown in Table 1, there were 10.6 million housing units in homeowners associations in 1998; and 5.1 million housing units in condominium associations.

The third instrument of collective property ownership in the United States is the cooperative. Cooperatives are more likely to be a single building. They became popular in New York City in the decades after World War II, partly as a method for avoiding problems that rent control was posing for owners of rental apartment buildings. As of 1995, there were 416,000 cooperative apartments in New York City. A cooperative is the truest form of collective ownership in that the entire property, including the individually occupied housing units, is owned jointly. …

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The Private Neighborhood: Will Homeowners Associations Lead to a Revolution in Local Government?
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