Unraveling HOA Rental Restrictions: A Disparate Impact on Real Estate Investment?
As an active real estate investor, you know that navigating the landscape of Homeowner Associations (HOAs) can be tricky. On one hand, HOAs play a crucial role in preserving community integrity, maintaining shared amenities, and ensuring compliance with community standards. However, recent trends hint at a potential blind spot in the HOA landscape that warrants a closer look: rental restrictions that could lead to a disparate impact on minority groups, and potentially, have an inverse effect on housing values.
In response to the rise of institutional investors like Invitation Homes, which own a significant number of single-family homes for rental purposes, some HOAs have introduced restrictive covenants designed to limit rentals and property ownership by such entities. Take into consideration the Skybrook community located in Huntersville, they just finished up voting for rental restrictions that I suspect will gain the necessary support to pass. The board aggressively sought out support by sending multiple messages and posting signs throughout the neighborhood. The board used messaging that painted very negative pictures specifically citing Invitation homes & some of the things their business is currently facing in regards to lawsuits and other legal complications. It should be noted that BBB rates Invitation Homes as A+ and I get wanting to make sure your investment is protected, but do these regulations truly serve the best interests of the community, or could they inadvertently create a disparate impact?
Contrary to popular belief, institutional investors accounted for less than 3% of home sales in 2021 and 2022. Meanwhile, small-scale investors, often termed 'mom-and-pop' landlords, are growing at a faster rate1. Could HOA rental restrictions, intend to curtail corporate landlords, inadvertently be stifling your opportunity as an investor?
Moreover, these regulations might inadvertently shrink the pool of potential buyers and renters, possibly affecting property values within the community and inhibiting its growth. The narrow focus on institutional investors could be ignoring a significant section of the real estate market, namely smaller, private investors, who play a vital role in keeping the market vibrant and diverse.
From a legal perspective, the landscape is evolving. Last year, the Department of Housing and Urban Development (HUD) proposed changes to the framework for pursuing disparate impact claims under the Fair Housing Act. These changes, currently under review, could have significant implications for HOA regulations. If a policy is shown to disproportionately affect certain groups, particularly those who rely on renting due to financial constraints or other circumstances, the legal implications could be serious for the HOA2.
What about the impact on community diversity? If rental restrictions disproportionately impact renters, who are often younger or come from more diverse backgrounds, we may risk creating communities that lack diversity. This isn't just a moral concern, but a practical one: communities that embrace diversity are often more resilient and attractive to a broad range of residents.
In conclusion, while the intention behind HOA rental restrictions is often to preserve community integrity and homeowners' investments, we need to consider the potential unintended consequences. The regulations need to balance immediate property values and community character with potential disparate impact and legal considerations.
So, for you, the real estate investor, what does this mean? It's a call to action. Be aware of these issues, engage with your local HOAs, and become part of the conversation.
At Terrance Clark Real Estate, we provide unparalleled expertise in investor acquisitions. We believe in the power of informed decisions and strategic planning in navigating the intricate real estate market. Whether you are planning to expand your portfolio or starting your journey as an investor, we are here to support your goals.
Visit our Investor Acquisitions page to learn more about how we can help you navigate this changing landscape. Let's ensure that HOA regulations truly serve to foster a thriving, diverse, and resilient community – one that recognizes and values the role of all types of investors.
