Inflation isn’t just a buzzword in economic discussions—it’s a reality that touches the lives of everyone. The impact of soaring inflation rates extends to homeowners and condominium associations (HOAs) as well. As the cost of living surges, the prices of both inelastic and elastic goods are on the rise. Affecting not only individual consumers but also the operations and financial stability of HOAs. This article will focus primarily on inflations impact on the HOA industry.
Understanding Inflations Impact on the HOA Industry
Inflation can create the illusion that HOA dues and expenses are spiraling out of control. However, the root of the problem lies in the declining purchasing power of currency as inflation rates increase. This phenomenon has significant implications for HOAs, affecting various aspects of their functioning.
The Inevitable Increase in Regular Assessments
As average inflation is expected in a healthy economy, your board should be monitoring the assessment levels in relation to the inflation rate. These assessments should be reviewed and adjusted annually to keep pace with the increases. By doing this we can avoid imposing special assessments to keep the basic operations running like usual in the event of an economic crisis. Careful planning and examining of the community’s expenses and financial goals each year will keep your community fiscally healthy even when the economy may be going through a bigger inflationary spike.
Assessments are calculated based upon the community’s projected expenses and financial goals for the year. Homeowners have an obligation to pay their regular assessments, but they also have other financial responsibilities that inflation may also be affecting. When struggling financially many homeowners will prioritize their own personal bills rather than worrying about the association’s bills. With the increase of regular assessments, most associations will also notice an increase in delinquency rates within the community. This is why it is important to analyze these rates in relation to the assessment amounts yearly. Gradually increasing the rates year by year as needed can help manage delinquency rates more effectively than a large increase.
Increases in the Cost of Routine Services
When inflation rises so does the cost of just about everything. Inflations impact on the HOA industry is more widespread than you would think. You will notice that your expenses are increasing such as the landscape contract, insurance premiums, utilities, and general contracting. Although some of these price increases are due to the increase in the cost of gas and supplies, they also must increase their cost for labor to ensure they are still making profit when the inflation rates are high. The increase in goods and services is calculated by looking at the Consumer Price Index (CPI). CPI is the most common instrument used to measure inflation. It is used to estimate the average variation between two periods of time and the price of the products consumed by households.
Both board members and their community managers need to be proactive when reviewing service contracts, even if that means putting your current contracts out to bid to obtain a price point that will best suit your community’s needs. You should be selecting the contract that can provide the most cost-effective services without having to sacrifice the quality of work being performed.
How to Help Your Homeowners During This Time
Empathy and clear communication are vital during times of rising inflation. HOAs can implement several strategies to support homeowners through these challenging periods:
– Provide homeowners with advance notice of fee increases, allowing them to adjust their budgets accordingly.
– Explain how the new rates were calculated and reassure homeowners that these rates are not permanent and can be adjusted when inflation subsides.
– Maintain transparency by clearly communicating where homeowners’ money will be allocated within the community.
– Consider waiving late fees for a temporary period to alleviate financial burdens on homeowners.
– Encourage homeowners to express their opinions on community matters, emphasizing that their input is valued and taken into account when making decisions.
Inflation Doesn’t Always Have to be Scary
While inflation can be a source of concern, it doesn’t have to be daunting. Both board members and community members should be educated and prepared for its effects. Open and transparent communication, combined with a well-thought-out plan for navigating through high inflation, can help ease the burden of increased assessments and ensure the financial well-being of the community.
In conclusion, understanding the impact of inflation on HOAs is essential for their successful operation. Proactive planning, clear communication, and flexibility are key tools for mitigating the effects of rising inflation. Doing all of this will also ensure the stability of community associations. By working together, HOAs and homeowners can navigate these challenging economic times with resilience and adaptability.
For additional guidance on how to safeguard your community against the effects of inflation, please reach out to us. We’re here to help you build a financially resilient community in the face of economic uncertainties.