Efficiency, accountability, and private government: The impact of residential community associations on residential property values

Objective. This study evaluates the impact of residential community associations (RCAs) on RCA property values by testing competing theoretical expectations about the efficiency and accountability of RCAs with empirical evidence. Method. We use pooled data on 195 units in six RCAs in one city, regressing sales price on RCA fees, a proxy for the importance of professional management compared to community involvement, previous property values, and other variables. Results. We find that increases in RCA fees (and services) depress average property values over what they would be otherwise, and that professional management somewhat mitigates this effect by raising property values. Conclusion. RCAs with horizontal, community controls act as if they are governed by a high-demand, volunteer, review group by producing and charging too much, while professional management (i.e., hierarchical control) slightly reduces the tendency of RCAs to produce and charge too much. RCAs may not be the model of efficiency that proponents of private governments expect.