Rental climate puts homeowners, HOAs on a collision course

Article Courtesy of  The Business Journal

By  Sougata Mukherjee
Published September 27, 2022



If every homeowner in this country was asked if they like having a renter as their neighbor, the super majority of the homeowners would say they would prefer a neighbor who owns the house.

Behavioral researchers who have studied these things say having people as neighbors with skin in the game offers neighborhoods a sense of continuity, security and community that eclipses almost any other wants. And perhaps the most important thing of all — homeowners feel having renters in their neighborhood diminishes the overall property values of the neighborhood.

But America is changing, and changing fast.

That’s because of skyrocketing rental prices. While home prices have stabilized somewhat from their runaway appreciation for most of 2021 and 2022, rental rates continue to rise at an unprecedented rate. From Austin, Texas, to Raleigh and Phoenix to Nashville, finding a one-bedroom apartment that is not a micro-unit for under $1,500 monthly rent is improbable. For most parts of the nation, those same units fetched $1,000 or $1,100 monthly rent just three years ago.

Homeowners may soon create a formidable foe in the form of HOAs.


Now, homeowners who wanted to sell their property only to see their asking price receive a lukewarm response are resorting to the next option – rent. Today’s rental rates, for the most part, could provide a homeowner with mortgage coverage, upkeep costs and even some leftover cash. With ownership costs covered and a slowing housing market, homeowners across the country better get ready to welcome new neighbors.

If this trend continues or accelerates, there’s one group that may soon voice its concerns — homeowners associations, also known as HOAs.

An HOA is run by a board of directors that is elected by homeowners to oversee the common assets of a property/area, manage its finances, run business affairs, enforce and set rules, and see to the maintenance and upkeep of the area.

Many HOAs have rental restrictions. These restrictions are geared toward the very thing homeowners in that neighborhood did not want in the past — temporary neighbors who rent property, who may not follow the neighborhood covenants, and who are gone at the end of the lease agreement. HOA covenant varies from state to state and neighborhood to neighborhood, but almost all of the covenants are geared toward the protection of homeowners’ rights and rules to protect the entire neighborhood whether it be property values, safety or aesthetics.

California and Florida have a mechanism to regulate HOAs for what lawmakers call a protection for the broader community of homeowners. In the past, lawsuits have flown against the HOAs whether it be for an owner’s right to make his/her house an Airbnb (Nasdaq: ABNB) rental or a yearly rental.

And these lawsuits are about to spread far and wide.

Tina Pace, a Raleigh attorney specializing in HOAs, said she has reworked 20 different HOA covenants in the past few months — just in the Raleigh, Durham area. “This could get contentious, as most homeowners probably do not know the HOA covenants,” she said.

This phenomenon could eventually see rental rates come down in various markets as rental inventory increases, thanks to single-family homes for rent. CoreLogic estimates rents from single-family homes rose 13.4 percent year-over-year in July after rising about 14 percent year-over-year a quarter ago.

There’s too much money out there, making many think this is the right time to cash in some of the gains and still continue to own the house and get the tax breaks.

But the biggest roadblock may come in the form of their own HOAs, neighbors and their community.