Homeowners' associations are non-profit organizations that charge recurring monthly dues to their members. These fees help to preserve community amenities and shared spaces including clubhouses, swimming pools, play areas, landscaping, pathways, and streets in good working order.
Management fees, insurance payments, maintenance services, common-area utilities, repairs, and replacements are all part of a normal homeowner's association budget.
Inflation is one of the financial issues that homeowners' associations (HOAs) face. This article will examine how inflation affects HOA assessments and reserves.
Do HOA Dues and Inflation Have a Positive Correlation?
Expenses will rise as a result of inflation. In layman's terms, inflation is the increase in the price of a product. This means that if your HOA dues are $200 per month, they will likely rise due to the recession.
However, the increase in HOA dues is not solely due to inflation. Remember that HOAs must still fund other costs such as insurance plus maintenance. Your HOA dues will be higher if your neighborhood has more amenities or facilities than others.
How Can You Adjust the Budget Against HOA Dues and Inflation
HOA dues and inflation are inescapable realities that every community has to face. But that doesn't mean you shouldn't challenge them; on the contrary, you need to be smarter about your approach to both.
You might begin by looking at how you manage your finances. For example, if you do not account for inflation while creating your budget, you will need to make some adjustments. Consider conducting internal research to determine how much each expense costs now and how much it will cost in the future.
The Impact of Inflation on HOA Assessments and Reserves
The budget of a homeowners association comprises fixed expenses as well as basic operating expenses. You must pay these recurrent fees every year, regardless of the economy or the local real estate market. They often account for more than half of the annual budget of a typical HOA.
Costs for fundamental operating expenses rise in tandem with inflation. You will have difficulty meeting these charges if your association does not adjust them. Inflation can cause price increases and a decrease in the purchasing power of money.
To combat this problem, homeowners associations must increase their budgets every year because they need more money to cover rising operation costs. However, it is not always feasible to raise HOA dues every year because many homeowners do not have the means to afford higher HOA dues.
How Do Higher Dues Lead To Higher Delinquency Rates?
A high delinquency rate indicates major difficulty for HOAs because more than one-third of them do not have adequate cash reserves. Without enough money in reserve accounts to cover unexpected bills, homeowners may be obligated to pay special assessments to cover these costs. This can lead to even more late payments in paying HOA payments.
Impact of Inflation on HOA Dues: How Much Is Too Much?
The most reasonable answer to inflation is to raise dues; nevertheless, HOA boards must ensure that they remain within their jurisdiction's legal limitations. This means you must analyze your HOA's bylaws and CC&Rs to determine whether and how much you can raise dues. Maintaining compliance with the law will protect the HOA from liabilities.
An Unavoidable Choice
The coexisting relationship between HOA dues and inflation is evident. Your budget needs to be flexible enough to accommodate the fluctuating rise. You can start by cutting non-essential costs and increasing HOA dues.
Jennifer Harvey
Staff Writer
