Association for Public Policy Analysis & Management

While there are many possible factors that may positively or negatively influence the value of a home, relatively few researchers have studied the impact of the existence of a Homeowners Association (HOA) on value. A HOA is a private organization that governs a community or neighborhood subdivision, and approximately one in four Californians resides in a HOA. In this study, I study examine the effect of HOAs on home selling prices in Sacramento County, California. My regression analysis uses a dataset obtained from Metrolist Multiple Listing Service (MLS) for all single-family home sales between September 2016 to December 2016. The regression has 6,165 observations and controls for over 160 independent variables, employing the following theoretical model:

Selling Price = f (HOA Characteristics_i, Property Characteristics_i, Location Characteristics_i, Market Characteristics_i)

Overall, there are 877 observations of homes within HOAs, and 5,288 observations of homes not within HOAs. The regression analysis suffers from heteroskedasticity, and clustered robust standard errors are used to correct that data condition. There are also signs of multicollinearity, though this did not seem to affect the statistical significance of most variables.

Holding all regression factors constant, the presence of a HOA is statistically significant with over 99 percent confidence to have both positive and negative effects on home value, depending on the zip code location of the property and the dollar amount of annual HOA dues. In Sacramento County as a whole, homes in HOAs sell for approximately 1.96 percent more than non-HOA counterparts, holding all factors constant. This equates to an increase of approximately $6,806 based on the mean home price in the dataset. Isolating different zip codes, there are 31 zip codes that are statistically significant influencing property value. The range of influence of a HOA is a decrease in value of approximately 23 percent in zip code 95821, to an increase in value of approximately 58.62 percent in zip code 95815. There are 20 zip codes where HOAs are not statistically significant relative to home value.

There may be limitations to this study. The R-squared value is .8690, which is strong however it indicates there are omitted variables that may contribute to the explanation of influence on home value. The dataset only looks at a snapshot in time and further investigation of observations from a wider span of time may enrich the findings. The dataset also does not contain variables such as proximity to neighborhood amenities, school boundaries, or resident demographic factors.

Ultimately with the results of this study indicating a positive influence of HOAs on selling price, there may be public policy implications that local officials should consider. An increased number of HOAs may provide economic benefit for Sacramento, as higher prices increase property tax revenues, and HOAs often provide services to residents that local governments provide. A proliferation of HOAs may also generate some negative spillover effects and spur racial and economic segregation, and exacerbate housing affordability issues. Further study is needed to explore these areas.