Impact of Homeowners Association Fees on Condominium Prices

Abstract

We investigate whether homeowners' association (HOA) fees are capitalized into condominium sales prices in San Diego, California. Prior work has found evidence that HOA fees are generally positively capitalized into housing prices, although the investigations have focused on single-family housing and have been conducted on the East Coast or the Midwest of the United States. Using sales of 1,087 condominiums in downtown San Diego, the results suggest that HOA fees do appear to have a marginally positive effect on sales price. We use a condominium data set to test whether the relative HOA fee (i.e., compared to other fees in the same condominium building) matters. We find that condominium units with below-average HOA fees sell at a premium relative to the average and units that pay above-average HOA fees sell at a discount relative to the average condominium. The differences are capitalized into sales prices using a capitalization rate of approximately 3.5%. These results suggest that buyers dislike the possibility of cross-subsidizing other condominium owners.