- Homeowners associations exploded in popularity in the 1960s as suburb development was booming.
- Some HOAs used racist deeds and covenants to bar Black buyers from purchasing homes.
- Today, HOAs are majority white and Asian, and Black homeowners say they experience targeted discrimination and harassment by their HOAs.
- Click here to sign up for Business Insider’s “Closing the racial wealth gap” panel on September 25 »
For too many Americans, the dream of owning a home has been stymied by a homeowners association. Owning real estate is one of the best ways to build wealth and pass that wealth on to the next generation, but for decades, Black Americans have been excluded from buying in certain neighborhoods.
Homeowners associations were first created in the mid-19th century, but didn’t gain popularity until the 1960s. Their popularity was driven by a rapid growth in suburban development and a desire by white Americans to keep certain populations out of their neighborhoods, experts say.
Jonathan Rothwell, author of “A Republic of Equals,” told Business Insider, “There is plenty of evidence from historic records and housing policy discussions that anti-Black racism motivated some of the strategies used by homeowner associations, such as deed restrictions and covenants that explicitly discriminated against Black people by compelling other owners to avoid selling to them. HOAs perpetuate racial and economic segregation by blocking fair participation in housing markets, thus denying wealth-generating opportunities and upward mobility for many Black people and lower-income families.”
Today, research shows that an estimated 60% of newly built single-family homes and 80% of homes in new subdivisions are part of a homeowners association. Neighborhoods with HOAs have, on average, more white and Asian residents — as well as more wealthy residents — and fewer Black residents than non-HOA areas. Homes in HOA neighborhoods also typically sell for 4% more than similar homes outside of HOAs — a boon for homeowners, but a roadblock for many prospective buyers.
Black homeowners say they’re targeted by HOAs
While the federal Fair Housing Act was passed in 1968, prohibiting racial discrimination in the sale and rental of homes, HOAs still find ways to exclude or discriminate against Black homeowners. A recent report found that neighborhoods with HOAs are less racially diverse, and less-regulated cities have higher HOA premiums, leading researchers to believe that residents rely on HOAs to facilitate segregation.
HOA discrimination can also look like preferential treatment of white homeowners. In 2019, Greenville News reported that a Black homeowner in South Carolina sued his HOA board over a long-running dispute over removing a shed in his backyard. Melchior Julien claimed that his HOA had a history of targeting his family while other white homeowners were not in compliance with rules and faced no consequences.
After much back and forth, Julien removed the shed and paid the $2,500 in HOA attorney fees, but didn’t pay the additional $3,600 in attorney fees he was charged for not removing the shed by the HOA deadline. When Julien refused to pay the additional attorney fees, a warrant was issued for his arrest. The case escalated to Julien filing a lawsuit against his HOA for $1 million, citing “racial discrimination, harassment, and emotional distress.”
While some accusations of HOA discrimination can be considered circumstantial, many HOAs still have “racially restrictive” language in their documents. In 2019, a Florida woman contacted an attorney when she found out that the HOA in her prospective neighborhood still had a “Caucasian-only” restriction, as WWNY-TV reported. While the restriction was unconstitutional, because of an easement in the document, the covenant was still considered active. Initially the city of Tallahassee considered the outdated covenant a private matter, but later agreed to address the issue.
Discrimination can happen at any time during a home purchase
HOA discrimination can happen after the sale of a home or even before purchasing. Rose Vincent, a real estate agent in South Florida, told Business Insider, “Today, HOAs can make it harder for certain homeowners by requiring minimum credit scores from prospective buyers, sometimes much higher than what is required to secure a mortgage. HOAs can also ask for in-person interviews and use background checks to keep buyers out, denying potential homebuyers for petty offences.”
HOAs are also notoriously hard to fight. Vincent said that homeowners may take an HOA to court, but courts will often side with the association. Homebuyers may not have the funds to hire a lawyer, and HOA discrimination is often hard to prove.
Not surprisingly, there’s a generational gap among homeowners who prefer an HOA. A recent study showed that 52% of boomer-aged homeowners liked their HOA, compared to 39% of millennials and 37% of Gen Xers. But even with all the HOA disdain, homeowners associations are actually growing in number. As of 2018, nearly 8,000 HOAs form every year, mostly in newly constructed communities.
Rothwell said, “I think HOAs are popular because they work to create and preserve privilege by excluding others. This drives up the value of properties by limiting competition and disrupting markets. People don’t necessarily seek out unfair privileges, but they are unlikely to voluntarily give them up without pressure from a stronger countervailing force.”
How to reform HOA culture
HOAs are made up of a small group of individuals voting for their own self interest, and there is little oversight as to what an HOA can and cannot do once the majority of members have voted. So how can HOAs be made equitable for all homebuyers and owners?
Rothwell said, “HOAs are a problem because they allow for the collective action of a group of people with a shared interest in blocking market exchanges. Banning HOAs would be an infringement of freedom, but banning the policy levers they use to exclude people would not. It would make housing more efficient and more equitable.”
While local laws can be passed to mandate HOAs to be more equitable, there is still little incentive to change. Instead, experts say younger homeowners must become active in serving on their HOA boards, voting to change potentially discriminatory rules, and banning problematic board members.
HOAs are here to stay, but they can be divested from their racist roots, opening up wealth-building opportunities to Black Americans. The answer lies in current homeowners working to make their HOAs fair by attending meetings, voting on by-laws, or running for board member positions.
Vincent said, “HOAs do serve their purpose in most communities, but the rules need to be updated and be less restrictive so people don’t shy away from them. Remember, HOAs are governed by homeowners. If one person is too strict or being unfair or biased, get involved and vote them out.”
This story is part of Business Insider’s “Inside the racial wealth gap” series.
- Read more “Inside the racial wealth gap” stories:
- A toxic mix of redlining and discrimination means homes in Black neighborhoods are chronically undervalued to the tune of $156 billion
- Gentrification doesn’t have to force minority residents out of their homes. Activists say there are 3 ways to protect communities.
- Racism has cost Black Americans $70 trillion since the start of slavery — here’s how that cost breaks down
- For Black Americans, degrees aren’t about catching up — they’re a matter of survival
Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. What you decide to do with your money is up to you. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.
racial wealth gap
Inside the racial wealth gap