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Beyond Privatopia | Preface

Beyond Privatopia

From the mid-1960s to the present, private communities became the predominant form of new housing construction in the United States. Planned subdivisions of single-family homes with homeowners associations (HOAs) are now the norm in suburbs across the nation, and new residential construction in central cities nearly always takes the form of condominium and townhome developments. All these forms of housing include shared property ownership and private governments that carry out what once would have been the responsibilities of local governments. They make and enforce rules, own or manage property, and administer a wide range of services paid for by their members. These various forms of housing are known collectively as common interest housing developments (CIDs).

In a previous work (McKenzie 1994), I explored how common interest housing came into existence, why it spread so fast, and how these private local governments depart from accepted notions of liberal democracy. My focus was on the role of private real estate developers, who created, standardized, and promoted this type of housing as a way to increase density (and therefore, profits) and escape the constraints of municipal governments. I also identified some of the political issues I believed would arise if the number of CIDs continued to increase, as I contended it would. I concluded by raising a question that had come from both ends of the political spectrum: would common interest housing eventually replace municipalities entirely as the basic form for providing services at the local level?

Since then, the number of common interest housing developments in the United States has continued to grow—from about 130,000 to almost 300,000—and the population of these private communities has doubled, from about 30 million to nearly 60 million (Community Associations Institute 2010). However, for the most part, municipalities have not tended to view private communities as their competitors or potential replacements. In fact, in many places the driving force behind the spread of common interest housing is no longer just developers but local government, too. Many municipalities have discovered that private communities are cash cows, because their residents pay property taxes but do not require a full share of local government services. Some local governments have embraced this concept to the extent of refusing to permit any other kind of residential construction (Siegel 2006).

Similar dynamics are apparent in other nations as well. Common interest housing has gone international, with American-style privately governed communities being constructed in Europe, Africa, Asia, and Central and South America (Glasze, Webster, and Frantz 2006). Even in China, where the status of private real estate ownership is problematic, an estimated 250 million people live in privately governed communities (Webster 2002a, b). Common dynamics lead to the emergence of private communities in many different places; these include the convergence of rapidly increasing demand for new housing construction and relatively low capacity of local government to provide services and infrastructure for the new residents. In such circumstances, private developers can secure building permits for large-scale construction if they promise to create private infrastructure and private services, with private governments to administer them. In the short term, local government officials may see this as a smart way to achieve growth in population and tax revenue at the same time. But little is known about the long-term consequences of municipalities growing beyond their means by relying on private developers and volunteer-run private governments.

Events over the past few decades suggest the need to better understand the role CIDs are playing in local government, and that is what I explore in this book. I am not the first person to do this. The literature includes several different frames for understanding the role of CIDs in local governance. Some writers situate this phenomenon in neoclassical economics, using libertarian theory and rational or public choice perspectives (Beito, Gordon, and Tabarrok 2002; Foldvary 1994). They contend that CIDs are more efficient and more democratic than municipalities and should actually replace them (Nelson 1999, 2005). Others argue from a progressive ideological perspective and see these associations as having the potential to fragment society.1 Some progressives see common interest housing as a way to advance communitarian values.2 The New Urbanist approach to architecture and urban planning places great reliance on the use of private communities to advance an environmentalist antisprawl ethic (Duany, Plater-Zyberk, and Speck 2000). Critical urban theorists tend to see these entities in terms of the politics of space, and to envision a radical segmentation of space and secession of the affluent and powerful into fortified private enclaves (Davis 1992).

Each of these perspectives captures some aspect of private communities. In fact, the phenomenon has a kaleidoscopic nature, in that it seems to give each observer a slightly different picture to look at, depending on the way he or she frames it. The neoclassical economists see a free market in which individuals make voluntary choices about how and where to live, and share the costs of common expenses, bound together by contract. Progressives see groups of people with similar characteristics clustering together in relative isolation from the rest of society, whether for good or ill. Critical urban theorists see private urban governance as a means for the affluent to disengage themselves from the rest of society and create a private realm where they control their resources and their neighborhoods, beyond the reach of the political system.

The perspective on common interest housing I present in this book combines practical experience and scholarly research. I derive my viewpoint from what I would characterize as a strange and circuitous route through the legal profession and academia. Before stating my basic argument, I will describe how I arrived at it.

In 1985, I was an attorney practicing at a civil litigation firm in San Diego. That firm, like two others where I later worked, represented parties involved in lawsuits filed by homeowner and condominium associations against real estate developers and insurance companies. These suits involved many parties, hundreds of homes, and huge stakes. They involved property damage the associations claimed was the result of defects in the way their homes were constructed. They sought millions of dollars to repair and replace roof systems, decks and balconies, windows, and even the very ground on which the homes rested.

These huge lawsuits were my introduction to common interest housing. For the most part, I represented associations, and through the suits I met many volunteer directors struggling with decisions that carried multimillion-dollar consequences. I saw at first hand how hard their jobs can be and learned that in many, if not most, cases they had not the slightest idea what to do, because they had no training or experience to guide them and no institutional support beyond their lawyers and other paid professionals.

This experience led me to think, and then to write, about the idea of private government, something that had intrigued me years before when I was pursuing a master's degree in political science. An early article on the subject (Bowler and McKenzie 1985) led eventually to a doctoral dissertation, and in time I completed a book on the subject of CIDs as private governments (McKenzie 1994).

By then I had left the full-time practice of law for academia. From 1990 to the present, I have been primarily a university professor. I teach political science at the University of Illinois at Chicago and also teach a course on the law of common interest communities at the John Marshall Law School. I joined an organized network of scholars from many nations who study private urban governance.3

However, I have maintained some involvement in the practical world of community associations by working as a consultant, even as an attorney on occasion, in cases involving disputes between CID governments and their residents. In the process, I have come to be identified as one who generally takes the part of owners in owner-board issues. This is an oversimplification, but I will acknowledge that my views expressed here concerning the need for greater regulation of CID boards are influenced by having seen the gross imbalance of power and other resources that too often leaves owners without recourse when their boards make mistakes or abuse their power. My views on that subject have also been influenced through contact with individuals, small groups, and a few attorneys who seek to represent the interests of homeowners.4

Keeping one foot in the world of academic theory and the other in the "real" or practical world of application is a challenge, but it has its benefits, and this book is rooted in my own unusual hybrid perspective. Some academic readers may be impatient with my use of practical examples, preferring more scientific methods and more attention to theories of urban politics and power. Attorneys and other practitioners, on the other hand, may wish I had less to say about theory. But in my view the worlds of theory and practice need to have more conversations across their professional lines on this subject, and I hope that my perspective promotes that conversation.

That perspective begins with a focus on institutions. I contend that understanding the hybrid institutional nature of CIDs offers the best insights into their emerging role in the intergovernmental system. My previous book documented how the institution of common interest housing evolved, being in a sense woven together from several historical threads: the evolution of private land-use controls, utopian ideas based on planning of entire communities (particularly the Garden City movement), the growth of the real estate development industry, and the greatly increased involvement of the U.S. government in the housing sector.

Briefly, my argument is as follows:

1. Common interest housing developments are neither fully private nor entirely public and do not fit neatly into any institutional sector. Theories that insist on CIDs' private nature, such as those based on neoclassical economics, start from an erroneous fundamental premise.

2. Common interest housing developments are not in the process of replacing municipalities. Local government policy toward private communities has shifted from skepticism to promotion, as municipalities begin to realize they can benefit fiscally from forcing new residential development into private communities.

3. An institutional convergence is under way. CIDs are becoming more governmental, and local governments are increasingly taking on the attributes of private corporations. From the standpoint of the citizen and homeowner, this amounts to a significant increase in the overall size, scope, cost, and intrusiveness of local government.

4. State legislatures across the nation are shifting away from the laissez-faire approach toward CIDs that has always been the norm and moving toward more significant regulation of these associations, their boards, and the professionals who serve them. Homeowner activist groups and individuals have become more effective at countering industry perspectives and advancing a consumer issue agenda. However, states are not willing to expend resources to bolster these volunteer governments, and that places the future of regulation in question. The willingness of state legislatures to impose new mandates without offering resources for training or dispute resolution raises the possibility of over-regulation, which could shrink the supply of volunteer directors. State reluctance to fund mechanisms for rapid, low-cost enforcement of new rules could reduce their effectiveness.

5. The existing forms of common interest communities rely too heavily on the economic and noneconomic resources of homeowners. The collapse of the housing industry in 2008 has hit CIDs, especially condominiums, very hard. Coupled with the lack of institutional support from state and local governments, this places the future of many CIDs in doubt. A problem is emerging: significant numbers of CIDs are failing to carry out their basic responsibilities or becoming insolvent. When this happens, they become burdens on the larger communities of which they are a part. This problem will become more serious as the years pass and will force a rethinking of the role of private communities in the system of local governance.

6. Finally, the convergence of public and private local governments is an important part of a larger process of local government evolution that has been under way for at least 30 years. Tax revolts, suburbanization, deindustrialization, globalization, immigration, and internal migration, combined with declining federal aid to local governments in the United States, have changed the structural position of local governments (Dreier, Mollenkopf, and Swanstrom 2004; Judd and Fainstein 1999; Marcuse 2000). The institution of common interest housing is one of numerous new or newly adapted special-purpose districts and authorities that have become part of an emergent system. The task of fully theorizing this process remains to be done, and I do not propose to complete it here. The CID revolution is part of something larger that has yet to be fully described (McKenzie 2003).

The first part of this book deals primarily with theoretical issues. Chapter 2 examines in detail a number of theoretical perspectives on common interest housing and critically evaluates them. Chapter 3 presents the case for common interest housing that has been advanced by believers in libertarian theory and rational choice economics. These perspectives-which rely on neoclassical economics-are the intellectual justification for continuing the spread of CID housing, and they require detailed analysis. I see significant problems with these perspectives.

The remainder of the book focuses to a greater extent on practical issues, and I present evidence for my view that these associations are converging with local governments. In chapter 4, I present my perspective on how CIDs function as part of the intergovernmental system, with particular attention to the local government policy of mandating only CID construction. Chapter 5 is an analysis of recent reform legislation in a number of states, where I argue that a regulatory model may be emerging from those efforts. Chapter 6 offers concluding thoughts on the future of this form of housing and considers the implications of its recent appearance in many other nations.

N O T E S

1. Louv (1985) and Robert Reich, "Secession of the Successful," New York Times Magazine, January 20, 1991, p. 42.

2. Housing cooperatives are a form of common interest housing, and the progressive origins of the cooperative movement in general and of housing cooperatives in particular are well known (Holyoake 1891). More recently, advocates of "co-housing" imported to the United States a Scandinavian idea that aimed to create truly voluntary communities based on common property ownership and advancing cooperative ideals (McCamant and Durrett 1993). These forms of housing are not widespread in the United States and are not growing significantly as a percentage of the new housing stock.

3. This network was organized by Georg Glasze, Chris Webster, and Klaus Frantz and now includes dozens of scholars from six continents. The network has held numerous conferences in various nations and has produced several books and special journal issues. Its activities are described at http://www.gated-communities.de. See also Webster, Glasze, and Frantz (2002).

4. Among the most prominent owner advocates are Shu Bartholomew of Virginia, creator of the radio program "On the Commons"; Jan Bergemann and Cyber Citizens for Justice in Florida; Pat Haruff of Arizona; George Starapoli, also in Arizona; Fred Pilot in California; Monica Sadler in Illinois; and, in New Jersey, attorneys Frank Askin of Rutgers Law School and Steven Siegel in private practice.

R E F E R E N C E S

Beito, David T., Peter Gordon, and Alexander Tabarrok, eds. 2002. The Voluntary City: Choice, Community, and Civil Society. Ann Arbor: University of Michigan Press.

Bowler, Mike, and Evan McKenzie. 1985. "Invisible Kingdoms." California Lawyer 5:55.

Community Associations Institute. 2010. "Industry Data." http://www.caionline.org/info/research/Pages/default.aspx. (Accessed March 30, 2010.)

Davis, Mike. 1992. City of Quartz: Excavating the Future in Los Angeles. London: Verso.

Dreier, Peter, John Mollenkopf, and Todd Swanstrom. 2004. Place Matters: Metropoliticsfor the Twenty-First Century, 2d ed. Lawrence: University of Kansas Press.

Duany, Andres, Elizabeth Plater-Zyberk, and Jeff Speck. 2000. Suburban Nation: The Rise of Sprawl and the Decline of the American Dream. New York: Farrar, Straus,and Giroux.

Foldvary, Fred E. 1994. Public Goods and Private Communities: The Market Provision ofSocial Services. Northhampton, MA: Elgar.

Glasze, Georg, Chris Webster, and Klaus Frantz. 2006. Private Cities: Global and Local Perspectives. New York: Routledge.

Holyoake, George J. 1891. The Cooperative Movement Today. London: Methuen & Company.

Judd, Dennis, and Susan S. Fainstein, eds. 1999. The Tourist City. New Haven, CT: Yale University Press.

Louv, Richard. 1985. America II. Los Angeles: Jeremy P. Tarcher.

Marcuse, Peter. 2000. Globalizing Cities: A New Spatial Order. New York: Blackwell.

McCamant, Kathryn, and Charles Durrett. 1993. Cohousing: A Contemporary Approach to Housing Ourselves. Berkeley, CA: Ten Speed.

McKenzie, Evan. 1994. Privatopia: Homeowner Associations and the Rise of Residential Private Government. New Haven, CT: Yale University Press.

———. 2003. "Common Interest Housing in the Communities of Tomorrow." Housing Policy Debate 14(1–2): 203–34.

Nelson, Robert H. 1999. "Privatizing the Neighborhood: A Proposal to Replace Zoning with Private Collective Property Rights to Existing Neighborhoods." George Mason Law Review 7(4): 827–80.

———. 2005. Private Neighborhoods and the Transformation of Local Government. Washington, DC: Urban Institute Press.

Siegel, Stephen. 2006. "The Public Role in Establishing Private Residential Communities: Towards a New Formulation of Local Government Land Use Policies That Eliminate the Legal Requirements to Privatize New Communities in the United States." Urban Lawyer 38(4): 859–948.

Webster, Chris. 2002a. "Private Communities and China's Dual Land Market." Speech presented at the International Conference on Private Urban Governance, Universityof Mainz, Germany, June 5–9.

———. 2002b. "Property Rights and the Public Realm: Gates, Green Belts, and Gemeinschaft." Environment and Planning B: Planning and Design 29(3): 397–412.

Webster, Chris, Georg Glasze, and Klaus Franz. 2002. "The Global Spread of Gated Communities." Environment and Planning B: Planning and Design 29(3): 315–20.

 

Beyond Privatopia: Rethinking Residential Private Government, by Evan McKenzie, is available from the Urban Institute Press (ISBN 978-0-87766-769-8, paperback, 164 pages, $26.50)

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