HOA vs. Leasehold

Abstract

HOA (homeowners association) and leasehold (such as shopping mall) are two important types of urban institutions that have been developing very fast worldwide. This paper extends Hart-Moore model on cooperative vs. outside ownership to the urban setting by incorporating a distinctive feature of urban land use: the transaction and consumption of land is bundled with that of collective goods. The focus is placed on the ex post pricing efficiency of providing collective goods. The impacts of endogenous outside market and the capitalization of collective goods into land price are also discussed. Findings suggest that HOAs are likely to be located in more competitive market such as the suburbs. Rich communities may prefer HOA while leasehold is more common for poor communities. Leasehold also becomes more efficient when the capitalization effect is weaker.