Are HOAs (home owner's associations) unlibertarian?
Consider:
* They are voluntary in the sense that you can choose to move away or not purchase the property in the first place, but a statist can make the exact same argument about taxes and governments in general.
* They have the power to foreclose on your home and give it to a board member for pennies on the dollar, over a small infraction or debt. This seems to be punishment vastly disproportionate to the damages, as per the NAP or as per anyone's idea of common sense.
What do you guys think? Anyone willing to shed more light on these two items?
Thanks!
They are not unlibertarian because they are completely voluntary. To be analagous to the State the HOA would have to annex your property, or have done so to some owner of the property in the past, and then forever lay claim to it even if they make no further agreements with future owners.
Your second point contains very good reasons why I wouldn't advise anyone to join an HOA with broad power over your property or with the ability to change the rules of the HOA without giving you the ability to quit the association. Being unadvisable and being unlibertarian are two entirely different things, however.
Merlin (emphasis added):2) condition after the sale: this is nonsensical. The moment I sign the contact the house is mine and no one can take it away anymore. It’s my property. Whatever conditions the HOA sought to impose cannot be enforced because property has now been transferred to me, and no conditions can apply to the usage of my property.
This (bolded statement) is tautologically true but does not entail that HOA-contracts are illegitimate. In order to get to this conclusion, you must also assume that property boundaries must be (metaphorically) smooth rather than jagged -- i.e., you must assume that certain rights, though logically disconnected, are not legally disconnectable.
For example, the right to eat an orange is logically dependent on the right to break its skin -- you cannot do the first without doing the second. Hence, possession of the first right must come with possession of the second.
On the other hand, the right to go fishing on a certain lake and the right to harvest ice from it are logically unconnected -- you can do one without doing the other, and vice-versa. There is therefore no basis to say that these rights cannot be held by two different people.
shazam:This seems to demonstrate that the HOA is essentially private socialism. While it would not violate the non-agression principle if entered into voluntarily, it is inherently economically inefficient.
Wouldn't this "private socialism critique" apply to every market entity comprised of more than one person, including a company with a single hot dog stand as its asset and ownership shared between three brothers?
Merlin:A single owner HOA, on the other hand (or a shares HOA, for that matter) has both the means to calculate how well its doing, and the incentive to act.
At least on my part, I'm talking about a shares-based HOA (a corporation, co-op, comprised of share ownership in the HOA accompanied with an exclusive property lease contract granted by the HOA to the shareholder). The value (desirability) of such shares on the open market would be directly affected by the quality of the management (bylaws, regulations, etc.) of the HOA. If the rules are bizarre, or over the top as judged by the market no one would want to partake in them, hence the value of the shares would go down as everyone tries to sell, with no buyers in sight.
The "mutual" case is somewhat of a strawman. Even the hot dog stand company has a clear share (equity) delineation among the three brothers.
Z.
There is something compelling about Merlin's argument that you "must be on someone else's property for him to impose his will on you." "Either," according to Maiku, it's "absolute ownership or nothing."
If someone can impose conditions on your own property, then you really don't own the property at all. This could be considered as Caley McKibbin aptly said "the same as the seller still owning the house."
However, a bank that grants a mortgage may place conditions on the mortgager to preserve the value of the collateral. For example, a property owner may not bulldoze his own house.
If the bank has a superior claim to the property, because the bank can "evict" the mortgager upon default, then the bank should be considered the real property owner, and the mortgager considered as having mere possession of the said property.
If the mortgager has provided a deposit of 20%, on a 30 year mortgage, then every year the mortgager "buys" from the bank 1/30th of the claim remaining, on top of the 20% he already "owns."
The contract is completed when the mortgage is paid in full. No more restricted by previous conditions, since all of these have been removed, the property owner comes into absolute ownership and may do as he wishes on his own property.
For a property within a Homeowners' Association (HOA), no matter how many payments are made, the claim by the HOA on the property can never be extinguished, unlike a mortgage.
There is no way for the property owner to "buy" the claim from the HOA, or bring the contract to a completion. [1] [2]
If the HOA has a superior claim on the property, because the HOA can "evict" a property owner, then the HOA should be considered the real property owner, and the property owner should be considered as having mere posession of the said property.
If the HOA is the real property owner, and the claim is perpetual, with conditions that can never be removed, no matter how many payments are made, then this arrangement is functionally equivalent to a lease.
For a lease, the landlord rents to the tenant a property. No matter how many payments a tenant makes, the landlord will never remove his claim on the property, as he has a perpetual claim on the property.
The landlord has a superior claim on the property, since the landlord can evict the tenant upon contract default. The landlord is the real property owner. The tenant merely possesses the property, as long as he abides by the contract.
Now if the HOA should be properly called a landlord, and the "property owner" a tenant, then the HOA can place whatever condition on the property it wants, within the contract, for a perpetual period of time.
This brings about the problem of contract enforcement. If we accept Merlin's view, then mere promises on a contract can never be enforced, but property rights as security can be enforced. [3]
For example, let's say a landlord rents a property to a tenant for a 10 year lease, with monthly payments made in advance. But then when one year elapses, the tenant defaults, and is evicted.
If promises on a lease contract can be enforced, then the tenant still owes 9 years of lease payments to the landlord.
If promises on a lease contract cannot be enforced, then the tenant owes nothing, and the landlord has a vacant property he can lease to someone else.
Let's assume the latter is true. If the landlord wishes to bind the tenant to a 10 year lease, then he may demand from the would be tenant a security deposit in advance, perhaps equivalent to one month for every one year of lease (or 10 months worth).
This security deposit is a pledge by the tenant to the landlord for future performance on the contract. If the tenant breaks the lease, the landlord keeps the security deposit, and the tenant does not owe anything more.
For a property within a HOA, the "buyer" is paying up front in advance the entire lease for an infinite period of time. However, why would anybody sign a lease for a commitment in perpetuity? [4]
If you think about it, signing a lease that lasts beyond your potential lifetime, while paying up front for it in advance, is really a bad deal for a tenant, and a good deal for the landlord. [5]
This is somewhat of a mystery why anybody would do that. Here I suspect this is an attempt to create a quasi-asset, such that lease contracts can be bought and sold on the open market.
If a lease contract is sold, the "buyer" is assuming the lease obligation, and the "seller" is compensated for the remaining value on the lease.
Normally, lease payments are fixed throughout the duration of the lease, since contracts cannot be unilaterally modified. In other words, lease payments cannot be raised, until the lease expires.
For a HOA, the same is true, but since everything is paid up in front, for a perpetual period of time, then there should be no additional charges beyond that. However, the HOA charges fees for maintenance and services.
Not only that, the HOA may periodically raise the HOA fees should costs increase or the reserve fund is too low. Furthermore, the HOA may charge special assessments from time to time for unexpected expenses.
How can these HOA fees and special assessments be consistent with an unmodifiable contract? Remember, the HOA lease is for a perpetual period of time, and thus can never expire. [6]
If the HOA fees were treated like utility charges, then maybe those charges can be passed on from the HOA to the "property owners." The problem with this approach, is that unlike utilities, HOA fees are mandatory and can never be avoided.
For example, if a cable company raises its rates, the tenant can always unsubscribe from the service, but if a HOA raises its fees, and the "property owners" refuses to pay, then it means eviction.
If someone were to be evicted, then it should be for a contract violation on not paying the amount due. But can this be justified if the amount due is not fixed within a lease contract?
Maybe a possible solution would be how a HOA a structured. If a HOA is structured as a mutual, where the landlords and tenants are one and the same, then any expenses incurred by the HOA would, if left unpaid, would ultimately be a liability against the assets. [7]
If tenants cannot be charged the amount, then the landlord is responsible for the expense. But since in a HOA the tenants are also the landlords, the HOA fees are assessed on the "property owner", not as tenants, but as landlords.
In general, the HOA concept should be considered more consistent with a landlord-tenant relationship, than a property transfer rule, and to do otherwise would make it more complicated than it has to be.
MacFall:Libertarian: The HOA recieves a property, and decides on a continual basis whether or not to maintain the restriction. Later occupants have the ability to buy the deed and own the property unencumbered. Unlibertarian: The HOA recieves a property with said restriction. A later occupant wishes to buy the deed unencumbered, but is not able to do so because the encumberments are considered to exist forever, even after the property has changed hands.
Merlin:For a typical contract has no when clause, no time when the house is yours. At any time, if you fail to do something, they take it away. Hence, its not a transfer of property. At any time, you can claim you money back, as they can with the house. Its rent.
Merlin:Now, if I pay you 100 buck to mown my lawn tomorrow, and you cancel in the afternoon, what has happened? Must you mow my lawn? No, its just a promise of your, and hence you can default. But that’s no the end of the story. For you do not own the 100 bucks I gave you. For our agreement was that I’d give you 100 buck to mown my lawn, hence those 100 buck become yours when my lawn is mowed, not now. You do not own them, hence I can easily call those back. Is this an acceptable outcome?
Merlin:Now the HOA could give you single-rent contract: you pay the market value of the house upfront, and what you get is to rent the house. You keep it as long as you comply with the owners (the HOA) regulations.
Caley McKibbin:If there was such as a thing as a value as rent contract and you were mentally retarded such that you would pay the value of a house as rent, the seller could take your money and instantly evict you for any invented reason, rinse and repeat.
Caley McKibbin:A purchase with the stipulation that the seller can arbitrarily change the terms at will is not really a purchase at all. It is simply person A giving person B money for nothing. "You pay me x and I still own the house." That is not a valid contract to begin with.
Merlin:My point is that most HOAs I know ff are mutuals, i.e. socialism incarnate. Otherwise I see no problem at all with their operation.
Merlin:Yet, unlike the hot dog stand that Z. took as an example, a whole neighborhood would actually find it very difficult to operate.
What about a whole IBM corporation "mutually" operated by millions of shareholders? "Private socialism", still?
Z, Blue,
Why A Mutual HOA is much more socialistic than IBM?
A share company has a very large degree of information of how well its doing: as much as it gets, actually. By simply looking at the price of its shares it can determine whether capital is attracted or not to the company. In such circumstances management has immediate feedback of its performance and can act accordingly.
The company is owned by shareholders, but they relinquish their right to day-to-day manage IBM and retain just the right of exit as their tool of making sure the company is well oiled. Decisions are made by management with 1) the power do to as it pleases, 2) the means to know whether its doing ill or good and 3) the incentive to make sure it does good.
A mutual company, on the other hand, has no feedback at all on how well its doing.
Does profit mean anything when your client are your owners/ not at all! A mutual cannot calculate!
The only feedback the mutual will get is the rent it can charge. But unlike profit, rent mean nothing for a mutual. Its owners gain nothing when rents go up, and neither do they loose anything if they go down. Thus, even if some rudimentary feedback exists, the mutual has no incentive at all to act according to the feedback!
The mutual will be an assembly of guys trying to maximize their subjective values by voting alone. We all know how well that went for socialist countries and Israeli kibbutzim.
A single owner HOA, on the other hand (or a shares HOA, for that matter) has both the means to calculate how well its doing, and the incentive to act. As things stand I really see no reason at all why, among two similar HOAs, anyone would chose the Mutual. It is my belief that such HOAs would cease to exist in a fully free market.
At least on my part, I'm talking about a shares-based HOA (a corporation, co-op, comprised of share ownership in the HOA accompanied with an exclusive property lease contract granted by the HOA to the shareholder). The value (desirability) of such shares on the open market would be directly affected by the quality of the management (bylaws, regulations, etc.) of the HOA. If the rules are bizarre, or over the top as judged by the market no one would want to partake in them, hence the value of the shares would go down as everyone tries to sell, with no buyers in sight. The "mutual" case is somewhat of a strawman. Even the hot dog stand company has a clear share (equity) delineation among the three brothers.
A co-op is as mutual.
The way I see it (and I believe we agree) is that a HOA will have to be either owned by a single guy, or by share freely traded.
Under such conditions, I believe that everyone would prefer to live in such a HOA (with rules to his liking, of course). There are just too many neighborhood effect of home ownership to be viable, I’m afraid. I myself am surely going to seek some development project house to rent when I move out of my house.
PS: and the mutual is not a straw man to be sure. In the US 55%+ of assets in the insurance market are owner by friggin’ mutual. Most HOAs I know of are mutuals. Modern states are huge mutuals, and nothing else. They are a real thing, unfortunately.
Merlin:The mutual will be an assembly of guys trying to maximize their subjective values by voting alone. We all know how well that went for socialist countries and Israeli kibbutzim.
From what I understand, mutuals are when owners and customers are one and the same (?). I don't fully understand the calculation problems of such a setup, so what you said is something to think about.
Merlin:A single owner HOA, on the other hand (or a shares HOA, for that matter) has both the means to calculate how well its doing, and the incentive to act. As things stand I really see no reason at all why, among two similar HOAs, anyone would chose the Mutual. It is my belief that such HOAs would cease to exist in a fully free market.
Merlin:PS: and the mutual is not a straw man to be sure. In the US 55%+ of assets in the insurance market are owner by friggin’ mutual. Most HOAs I know of are mutuals. Modern states are huge mutuals, and nothing else. They are a real thing, unfortunately.
Mutuals have survived the market test, since there are so many around, e.g. insurance firms. If mutuals are that successful ("55%+ of assets in the insurance market"), then how can you explain why they are doing so well, despite the calculation problems?
Think Blue:Mutuals have survived the market test, since there are so many around, e.g. insurance firms. If mutuals are that successful ("55%+ of assets in the insurance market"), then how can you explain why they are doing so well, despite the calculation problems?
I still have scant knowledge on the working of mutual insurance firms, but their success puzzled me from the very beginning. I can’t provide much elaboration right now, I’ll have to check much more material.
I.e. socialism in a limited scale
How so?
Freedom of markets is positively correlated with the degree of evolution in any society...
What I discuss above.
How does selling a limited bundle of rights make it "socialist"? Is renting "socialist"? Are appartment complexes "socialist"? Even if one were to hold to such a premise, what if it were merely held by shareholders?
My point is that most HOAs I know ff are mutuals, i.e. socialism incarnate. Otherwise I see no problem at all with their operation.
The premise of the thread is wrong. You should be asking what kind of economic model a HOA is, and what its limitations are. Some have already replied to this, pointing out that HOAs are cooperatives and not capitalist by nature. As such, they are prone to all the drawbacks of cooperatives as an economic model for the production of cities.
Whether or not it is libertarian is relevant only to the extent that state law coerces it. I don't believe it does, however it does monopolize most other forms of urban land.
The fallacies of intellectual communism, a compilation - On the nature of power
Blue, awesome post man!
PS: I can only add, that after you die your heirs get back what you paid for your lifetime rent for the HOA. Thus, what you pay is a deposit, which you can claim whenever you cancel the agreement.
If we accept Merlin's view, then mere promises on a contract can never be enforced
I don't, but your answer is the most detailed thus far, so I've verified it as an answer.
In a sense, today's world can be looked at as a nested hierarchy. Since only government has complete control over property, only government are the "true" owners of said property. Owners of non-HOA homes are in a sense simply buying infinite leases from the government, and if within an HOA, we are simply nesting one more layer on top of this.
Take away the government, and the potential for nesting property still remains. There will also likely always be bad apples in the bunch that offer obscene clauses, and people that accept them. So long as there remains a diverse mix of HOAs and the ability to avoid them, it shouldn't be too bad. Nothing prevents one HOA from buying up everything, but it would be pretty expensive to do so.
I have a better understanding of the situation now; thanks guys.
Merlin:Blue, awesome post man! PS: I can only add, that after you die your heirs get back what you paid for your lifetime rent for the HOA. Thus, what you pay is a deposit, which you can claim whenever you cancel the agreement.
Thanks Merlin. I'm glad you liked it.
Inheritence I feel is somewhat more complex, so I left that out, but your statement seems to be plausible.