For most of American history, the standard form of living arrangement was a single home or an apartment that was owned or rented by an individual household. Any need for collective action among individual property owners was met by a local government in the public sector. Local governments provided public services and facilities, such as street construction and maintenance, garbage collection, law and order enforcement, and community parks and playgrounds. Once zoning was introduced in 1916, local governments also regulated the interactions among individual property owners, interactions that could influence the quality of the surrounding neighborhood environment.
Since the 1960s, however, local government's role has increasingly been privatized. In 1965 fewer than one percent of all Americans were living in a private community association. By 2004, 18 percent—about 52 million Americans—lived in housing within a homeowners association, a condominium, or a cooperative, and very often these private communities were of neighborhood size.1 Indeed, since 1970 about one-third of all new housing units in the United States have been built within a private community association. In California at present, 60 percent of all new housing is being built in a community association.2 People living in these areas are required to join the private association in order to purchase a home or other property there.
This privatizing of the neighborhood over the past 40 years represents a radical new development in the history of American local government. The rise of private neighborhoods, one legal authority writes, is achieving "a large-scale, but piecemeal and incremental, privatization of local government."3 It is significantly altering the way tens of millions of Americans obtain housing. An expert on homeowner association and condominium law declares that these new forms of housing ownership are creating "a revolution in American housing patterns."4 Another states more broadly that there is today an ongoing "massive societal transformation represented by restricted-access living" across the United States. Although originally oriented to higher-income groups, private communities are now "found throughout the country and cater to all income levels, including working class citizens."5
The rise of the "private neighborhood association"—the term that will be used in this book to describe the several legal forms for private collective ownership of housing—follows the rise of the corporate business ownership of private property in the late 19th century. Both represent fundamental turns away from individual property ownership and toward new collective forms of private property. Indeed, the rise of the private neighborhood association represents the most important property right development in the United States since the creation of the modern business corporation. By 1994 the California Supreme Court would declare that "common interest developments are a more intensive and efficient form of land use that greatly benefits society and expands opportunities for home ownership."6 In the modern age, new forms of property ownership had to be created to coordinate private economic activity within large organizations—first, private business corporations more than 100 years ago, and now, private residential neighborhood associations.
Revisiting Political Philosophy
Since the 17th century, the leading political philosophies have been founded on the twin concepts of the individual and the nation-state. Among the founders of modern political theory, John Locke was a great defender of the rights of the individual, Thomas Hobbes of the virtues of a powerful state. A private neighborhood association might now be seen as a new kind of political actor, a small powerful jurisdiction that is entered into voluntarily as an exercise of individual choice.
Other types of actors, such as the European Union and the member states to the North American Free Trade Agreement (NAFTA), emerged in the second half of the 20th century. If on a much smaller geographic scale, the self-governing private neighborhood can also be seen as part of the rise of new governmental forms that may dramatically rework the political landscape of the 21st century. It is giving the individual neighborhood, for the first time, a main role in the American governing system. Private neighborhood governance seems likely to become increasingly important to America's overall political arrangements. The rise of the private neighborhood association thus is raising new questions about the structure of American government, questions that may require that we revisit basic issues and arguments in political philosophy.
Neighborhood associations raise tensions among different forms of individual freedom. One freedom is an individual's right to join a group that offers a setting for collective action, such as a church. Yet, within a given group tight limits may be imposed on other individual rights such as speech, assembly, and religion—and in a neighborhood association these limits are imposed throughout a common geographic area. Exclusive groups may also deny other individuals who do not share the same values the right to join the group—and thus to some degree they further limit the individual rights of each such excluded outsider. Identifying the tensions among individual rights is easy; resolving them, however, is more complicated and requires balancing competing goals and values as they are affected by the rise of private neighborhood associations.
Although the United States was founded on a philosophy of individual liberty (expressed politically through the right to vote and economically through the protection of private property), the 20th century saw a significant shift away from the original emphasis on individual freedom. Many American intellectuals sought to manage society toward particular ends, often hoping that applying new methods developed by the social sciences would make this possible, and requiring a more collective social control. Indeed, some hoped for comprehensive social management in all areas by the government; the majority, however, argued for new institutional arrangements of private groups that would then lead to the desired social ends. John Maynard Keynes thus famously contended—in opposition to Marxists and socialists—that the private market should be preserved because society could manage the market process to avoid unemployment and achieve other desirable goals.7
More recently, Robert Putnam and others have argued that excessive individualism and a loss of shared values threaten the United States, which is losing its "social capital."8 One proposed remedy is to encourage stronger private associations that would educate the American people locally in practicing democracy and other aspects of group life, and in this way also help to inculcate stronger values. These values may differ significantly from individual to individual but many advocates of a more vital "civil society" argue that some values are preferable to no values.*
From this perspective, the critical issue in assessing the future of neighborhood associations is not resolving the tension among different forms of individual freedom. It is instead a question of whether encouraging neighborhood associations, along with other forms of private associational life, will advance the necessary common bonds and otherwise make American society "work better." Will the rise of private neighborhood associations contribute to making American democratic life more vigorous and enlightened? Will it provide the social capital needed for a political system to succeed and for the economy to prosper? The grounds for judgment here are more utilitarian and less a philosophical resolution of conflicting claims to individual freedom. How to resolve the social and legal status of the private neighborhood association will be an important ground for future debate in American political philosophy.9
A Personal Journey
The beginnings of this book go back as far as 1968 when, as a graduate student in the economics department at Princeton University, I completed my coursework for a PhD. At that time the problems of America's urban areas—some of which had burned recently in riots—were at the forefront of public attention. I resolved to become an urban economist and subsequently wrote my PhD thesis in this area.10 This interest eventually led to the publication of Zoning and Property Rights in 1977, a book that described the "privatization" of zoning over 60 years of land-use regulation.11 Although this outcome was a large departure from the received theories of zoning, the workings of zoning can be regarded in practice as socially beneficial in the same way that other private property rights generally play a constructive role in encouraging productive efforts in society. In the case of zoning, the de facto private rights promoted building and maintaining attractive residential neighborhoods.
The theme that government regulations, such as zoning, have been captured for private purposes has since become a common argument, often associated with James Buchanan and the "public choice" school of economics, as well as the University of Chicago school of economics. Like zoning, many other regulatory institutions of American government have intellectual roots in the political and economic thought of the Progressive Era (which historians typically date from 1890 to 1920). In the 1980s and 1990s, many "progressive" systems of regulation in areas such as transportation, energy, banking, communications, and still others were cut back or eliminated. In other nations, such industries were often privatized, as a privatization movement—analogous to the deregulation movement in the United States—spread across the world.
Zoning has thus far not been deregulated; the formal institution of zoning is alive and well. However, American neighborhoods have been substantially privatized. Zoning has steadily evolved in practice toward a collective private property right. Many municipalities now make zoning a saleable item by imposing large fees for approving zoning changes. Many Americans seem to prefer a de facto private status for their immediate neighborhood environment—putting the neighborhood in the same category as their automobile, furniture, and other private possessions. The rise of the private neighborhood association, as this book will show, is the culmination of a long process of neighborhood privatization in the United States over the 20th century.
In the late 1970s, after taking a job in the U.S. Department of the Interior in Washington, D.C., my interests shifted to another area of U.S. land policy.* Many of the institutions of the public lands—representing 30 percent of the land in the United States—were also products of the Progressive Era. As I delved further into public land management, I found many parallels between the history of private land zoning and of public land management. In each case, the goal had been comprehensive planning by government of the physical environment—applying methods of scientific management to shape future use of land. In both cases, the outcome had been a privatization of nominally governmental functions.12 The public "planning" that took place frequently provided a camouflage for the advancement of private interests. The Progressive-Era rhetoric and rationales still lived on in zoning and management of public lands, but the greatest beneficiaries typically were private groups.
In the 1980s my intellectual interests extended to include the study of another Progressive-Era legacy. The American Economic Association was formed in 1885, part of a systematic effort to create professional associations that would provide expert knowledge across many areas of American society. Yet, once again, I found the progressive model flawed; the economics profession had promised more than it could deliver. Indeed, the scientific method—so enormously successful in the study of physical nature— had proven difficult to transfer to human affairs. Despite the contrary view of many fellow economists, the values underpinning economics could not be separated from the scientific elements in either practical applications or basic theory. It was appropriate, as I increasingly came to conclude, to regard American professional economics as one of the new "secular religions" that had become prominent in the modern age.13
This book continues my exploration of the practical failures of Progressive-Era political and economic ideas. I first explored this theme in Zoning and Property Rights in 1977. While that book focused on zoning, this book describes the rise of the private neighborhood association and the likelihood that it will become a central political institution in America in the 21st century.
A New Area of Study
Economists did not appreciate the full social significance of the corporate ownership of property until long after corporations had become prominent in America. Indeed, it was not until 1932, when Adolf Berle and Gardiner Means showed that the rise of the modern corporation had transformed the relationship between the ownership of business property and the managerial control, that this development gained the wide attention of the American economics profession.14 Even today, much economic analysis best suits a market framework of atomistic firms with individual owners and decisionmakers. The internal workings of business corporations pose issues of collective choice and action that have more traditionally been studied within the framework of American political science.
Social scientists have also been slow to recognize the rise of the private neighborhood association.* Economists have thus far shown little interest in their professional publications.15 This is not due to a lack of useful tools that might be applied to the study of private neighborhoods. Since the 1960s, James Buchanan, Gordon Tullock, and others in the "public choice" school have explored collective decisionmaking from an economic perspective.16 The insights of Mancur Olson in his 1965 classic, The Logic of Collective Action, are readily applicable to the functioning of private neighborhood associations.17 Economists have shown a long-standing interest in the role of private property rights in an economic system.
Following Charles Tiebout's classic article, a substantial economic literature of "fiscal federalism" developed.18 Tiebout in effect argued that a system of local governments could function like a group of private clubs, acting to align the supply of collective services closely with the demands for these services. With the rise of the private neighborhood association, the real world of local governance more closely conforms to the assumptions of a Tiebout world. As a leading legal practitioner in the field of neighborhood association law notes, "the assessments of the condominium association can be compared to the taxes of a city," and the ability of the board of directors "to develop and modify rules and regulations is similar to the ability of a municipality to pass and amend ordinances."19 Yet, the transaction costs of creating and modifying neighborhood associations in response to new economic circumstances—in moving from one economic equilibrium to another—are less than the costs of local government.
In the 1990s, a small group of political scientists began to note the growing social significance of private neighborhood associations. However, they often viewed the private character of the neighborhood association as a step backward from the "progressive" trends of the 20th century.20 The rise of the neighborhood association was thus seen as a parochial and divisive turn away from the higher ideals of a unified national community. As compared with social scientists, lawyers have paid considerably more attention to the rise of neighborhood associations. Already, more than 4,000 cases involving the actions of private neighborhood associations have ended up in court.21 Most of the legal literature, however, has narrowly focused on issues of neighborhood associations' authority and range of permissible behavior.
The Plan of the Book
This book will apply a broadly economic framework to explore the rise of the private neighborhood association and its social significance. On the whole, the book will take a positive view. 22 This is not to deny the existence of problem areas. Indeed, the book will present possible changes in the organization of neighborhood associations—how they are legally established, how they are governed, how they conduct their operations, and in general their "constitutional" structure. The goal will be to provide an agenda for future improvements in how private neighborhood associations work.
The intended audience for the book includes land-use professionals with backgrounds in law, urban planning, economics, political science, and other fields. In addition, residents of private neighborhood associations and others with practical concerns relating to their theory, history, and workings may also find the book of value. As in my other works, I seek to write in a manner accessible to professionals and nonprofessionals alike, who may, for whatever reason, have a strong concern in the area addressed.
Part I of the book describes the rise of the private neighborhood association. In the 1960s, state governments enacted new laws to encourage the creation of neighborhood associations. Real estate developers responded with enthusiasm. This was not, however, the first act of asserting collective control over the surrounding neighborhood. That step was taken with the establishment of zoning early in the 20th century. Part II shows how the rise of private neighborhood associations culminated a process of neighborhood privatization that first began with the spread of zoning regulation of land use.
By the 1960s and 1970s, as part of a wider questioning of progressive plans for American government, a neighborhood movement arose to advocate decentralizing local governance. The neighborhood movement was mostly concerned with local governments in the public sector. Yet, the number of new private neighborhood associations has now greatly exceeded the number of new neighborhood public governments. This powerful "private neighborhood movement" will likely do much to shape future local governance in the United States. Part III sets this development in the context of wider political and economic public philosophies in American history.
At present, neighborhood associations can only be created in new housing developments where homebuyers must agree to the association's legal authority as a condition of purchase. However, many established neighborhoods might benefit from a private neighborhood association. In part VI, I propose that an established neighborhood should be able to create a private neighborhood association on the basis of a supermajority vote of current property owners. Gaining more secure control over the surrounding environment would potentially benefit many inner-city neighborhoods that have physically deteriorated and suffer from crime, drugs, and other social problems.
The private status of the neighborhood association gives it an option to experiment more freely with new governing methods. Until now, neighborhood associations have not taken much advantage of this freedom. Most neighborhood associations operate under boilerplate founding documents that real estate lawyers routinely provide. Part V proposes that the "constitutions" of neighborhood associations should be more diverse and more closely tailored to the needs and circumstances of each individual neighborhood. A menu of constitutional options—new methods for electing neighborhood boards of directors (the neighborhood "legislature"), for administering the neighborhood, and for resolving neighborhood legal disputes—is provided for review of interested parties.
Many basic social choices must be made concerning the future role of neighborhood associations in American life. These issues include the permissible legal powers of neighborhood associations to exclude prospective residents, the acceptable voting qualifications in neighborhood association elections, and the terms under and degree to which associations will be legally allowed to withdraw from their existing local government. Part VI explores these areas of current public policy concern.
This book thus provides a comprehensive analysis of the history of private neighborhood associations in the United States, their current circumstances, and the potential future directions for change. The book can be read in its entirety or by selecting portions of particular interest. Readers who are already knowledgeable about the legal arrangements and workings of neighborhood associations, for example, might find part I of less interest. Readers with broader interests in the role of neighborhood associations in the American political economy might well find parts II and III of the greatest benefit. If the extension of neighborhood associations to established neighborhoods holds an appeal, part IV provides a blueprint for implementation. A reader interested in reforming his or her existing neighborhood association might find part V to be of the greatest usefulness. Finally, readers looking for the future desirable political and legal role of private neighborhood associations in American life might find part VI to be of the greatest interest.
Notes
* William Galston, a distinguished American political philosopher at the University of Maryland, thus argues that "the greatest threat to children in modern liberal society is not that they will believe in something too deeply, but that they will believe in nothing very deeply at all. Even to achieve the kind of free self-reflection that many liberals prize, it is better to begin by believing something." Civic attitudes in general will be encouraged in American life by wide processes of "rational deliberation" in which it may be more important that "the stakes are meaningful" in each case, rather than the precise character of the issues debated. See William A. Galston, Liberal Purposes: Goods, Virtues and Diversity in the Liberal State (New York: Cambridge University Press, 1991), 255.
* In 1975 I joined the Office of Policy Analysis in the Office of the Secretary of the U.S. Department of the Interior. Partly because this office functioned at times in the manner of an in-house think tank for the Interior Department, and afforded considerable opportunity for professional research and writing, I remained there until 1993. At that point I left to join the faculty of the School of Public Affairs at the University of Maryland in College Park.
* In a recent book, a prominent American social scientist and the director of the Center for American Political Studies at Harvard University, Theda Skocpol, undertakes a broad review of trends in association life in the United States over the past century. She argues that there has been a fundamental shift from membership associations with large numbers of active local chapters—groups such as the Masons and the Knights of Columbus—to new forms of national lobbying and professional associations—groups such as the National Organization for Women and Greenpeace. Yet, remarkably, Skocpol never brings up the subject of private neighborhood associations or addresses the seeming inconsistency of their rapid rise with her main thesis. See Theda Skocpol, Diminished Democracy: From Membership to Management in American Civic Life (Norman, OK: University of Oklahoma Press, 2003).
1 See the web site of the Community Associations Institute, Alexandria, Virginia, http://www.caionline.org/about/facts.cfm.
2 David W. Lyon, "Foreword," to Tracy M. Gordon, Planned Developments in California: Private Communities and Public Life (San Francisco: Public Policy Institute of California, 2004), iii.
3 Steven Siegel, "The Constitution and Private Government: Toward the Recognition of Constitutional Rights in Private Residential Communities Fifty Years after Marsh v. Alabama," William & Mary Bill of Rights Journal 6 (Spring 1998), 560-61.
4 Robert G. Natelson, "Consent, Coercion, and 'Reasonableness' in Private Law: The Special Case of the Property Owners Association," Ohio State Law Journal 51 (Winter 1990), 42.
5 Richard Damstra, "Don't Fence Us Out: The Municipal Power to Ban Gated Communities and the Federal Takings Clause," Valparaiso University Law Review 35 (Summer 2001), 542, 530.
6 Nahrstedt v. Lakeside Village Condominium Association italic'>, 878 P.2d at 1288 (1994). See also Katharine N. Rosenberry, "Home Businesses, Llamas and Aluminum Siding: Trends in Covenant Enforcement," John Marshall Law Review 31 (Winter 1998).
7 John Maynard Keynes, The General Theory of Employment, Interest and Money (New York: Harcourt, Brace, and World, 1965).
8 Robert D. Putnam, "Bowling Alone: America's Declining Social Capital," Journal of Democracy 6 (January 1995); Robert D. Putnam, "Tuning In, Tuning Out: The Strange Disappearance of Social Capital in America," PS: Political Science and Politics (December 1995); and Robert D. Putnam, Bowling Alone: The Collapse and Revival of American Community (New York: Simon and Schuster, 2000).
9 Nancy L. Rosenblum, Membership & Morals: The Personal Uses of Pluralism in America (Princeton, NJ: Princeton University Press, 1998), ch. 4.
10 Robert Henry Nelson, The Theory of Residential Location (PhD thesis, Princeton University, 1971).
11 Robert H. Nelson, Zoning and Property Rights: An Analysis of the American System of Land Use Regulation (Cambridge, MA: MIT Press, 1977).
12 See Robert H. Nelson, Public Lands and Private Rights: The Failure of Scientific Management (Lanham, MD: Rowman & Littlefield, 1995); and Robert H. Nelson, A Burning Issue: A Case for Abolishing the U.S. Forest Service (Lanham, MD: Rowman & Littlefield, 2000). On the failings of public land management, see also Robert H. Nelson, The Making of Federal Coal Policy (Durham, NC: Duke University Press, 1983).
13 See Robert H. Nelson, Economics as Religion: From Samuelson to Chicago and Beyond (University Park, PA: Pennsylvania State University Press, 2001); and Robert H. Nelson, Reaching for Heaven on Earth: The Theological Meaning of Economics (Lanham, MD: Rowman & Littlefield, 1991).
14 Adolf A. Berle and Gardiner C. Means, The Modern Corporation and Private Property (New York: MacMillan, 1932).
15 There are a few exceptions. See, for example, Donald J. Boudreaux and Randall G. Holcombe, "Government by Contract," Public Finance Quarterly 17, no. 3 (1989); Yoram Barzel and Tim R. Sass, "The Allocation of Resources by Voting," Quarterly Journal of Economics 105 (August 1990); Fred Foldvary, Public Goods and Private Communities: The Market Provision of Social Services (Brookfield, VT: Edward Elgar, 1994); and Donald J. Boudreaux and Randall G. Holcombe, "Contractual Governments in Theory and Practice," in David T. Beito, Peter Gordon, and Alexander Tabarrok, eds., The Voluntary City: Choice, Community, and Civil Society (Ann Arbor: University of Michigan Press, 2002).
16 James M. Buchanan and Gordon Tullock, The Calculus of Consent: Logical Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962).
17 Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups (Cambridge, MA: Harvard University Press, 1965).
18 Charles M. Tiebout, "A Pure Theory of Local Expenditures," Journal of Political Economy 64 (October 1956); see also Wallace E. Oates, "An Essay on Fiscal Federalism," Journal of Economic Literature 37 (September 1999).
19 Peter M. Dunbar, The Condominium Concept: A Practical Guide for Officers, Owners and Directors of Florida Condominiums, 7th edition (Tallahassee, FL: Aras Publishing, 2000), 11.
20 Evan McKenzie, Privatopia: Homeowner Associations and the Rise of Residential Private Government (New Haven, CT: Yale University Press, 1994).
21 Wayne S. Hyatt and Susan F. French, Community Association Law: Cases and Materials on Common Interest Communities (Durham, NC: Carolina Academic Press, 1998).
22 See also, most recently, Robert H. Nelson, "The Rise of the Private Neighborhood Association: A Constitutional Revolution in Local Government," in Dick Netzer, ed., The Property Tax, Land Use and Land Use Regulation (Northampton, MA: Edward Elgar with the Lincoln Institute of Land Policy, 2003); and Robert H. Nelson, "The Private Neighborhood," Regulation 27 (Summer 2004).
