Monday, March 13, 2017

The 50-Year-Problem Part 1 - The Renter Mentality

In Defining the Problem, I described the difficult and frustrating position in which many common interest developments find themselves - facing snowballing maintenance costs with no cash. Here in The 50-Year Problem, I'll begin to explore why much of the problem was naively and neglectfully overlooked.

In The 50-Year Problem I'll touch on three points:
The renter mentality
The 30-year reserve study
The 50-year time bomb

Here, we'll only cover Part 1. 

Part 1 - The Renter Mentality
In a condo conversion, apartments are transformed into condos with the wave of a magic wand.  This conversion is a convenient case study for understanding the renter mentality within many HOAs. In the study, we glimpse the differences between the mindset of the old investor (singular) and the new investors (plural).

Now, when I say "renter mentality", I don't mean that HOA members actually think they are paying rent. Nor do I suggest that they don't understand that they bear some responsibility as an owner, though as I will show below, many owners within an HOA will fail to grasp their long-term responsibilities to the corporation. Also, I will not be discussing the often criticized member who calls management when the toilet clogs or the disposal jams. That is indeed an annoyance, but it is only an acute symptom of the renter mentality; a symptom which often goes away, while the underlying mentality remains. So let's take a look.

As an apartment, a single investor or set of investors was dedicated to the upkeep and management of the community. The regime was totalitarian but efficient. Maintenance of the whole property was guided by an asset preservation model. The individual tenants relied on the manager and owner to maintain the asset, while future profits and raw economics motivated the investor to do so. The siding was replaced because the value of the asset dropped as rot increased. The singular nature of the investor or group of investors was the key. One entity called the shots. 

As a condominium, the politics change. No longer a dictatorship, the new entity is assumed to operate something like a democracy or republic. In truth, it will likely lurch and grind under its own weight and an oligarchy will emerge. The democratic ideal will remain as each owner has a vote, but apathy will inevitably and disproportionately empower a few. 

So how does this create a renter mentality? In this way: As in the apartment model the uninterested tenants are relying on the "few" to maintain the asset, so likewise in the HOA, the apathetic owner assumes that someone else is looking toward the future and making decisions that will benefit him and his piece of the investment. Even the Board Member making decisions finds it easy to offload the responsibility of his decisions to the group. In each instance, the individual is assuming that the true burden of responsibility lies on someone or something else. 

Sociology textbooks are jammed with examples of just this scenario: A visible problem sits ignored because each believes another is responsible.

But let's go back to those few, the oligarchy set up to be responsible. Is the oligarchy qualified to manage the asset? Did they join forces because they desired to manage this investment? Is the asset management their passion or priority?
The answer is obviously, across the board, no.
Qualified - Only possibly if they are by some chance already in that line of work.
Join forces for this purpose - No, they were looking for a home they could afford and enjoy.
Passion or Priority - Not at all, they were more than likely annoyed when they realized that there were expectations attached to the purchase of the property.

Does this mean the project is doomed? Of course not, some HOA's thrive, but it does represent a systemic liability in the design.

Now, briefly return to the Apartment vs. HOA illustration and consider the massive pressure of living in proximity to the people your decisions affect. Contrast the investor with the board member:
The investor has considerable positive peer pressure to commit financial resources to the maintenance of the investment, while the board member has considerable negative peer pressure to commit financial resources toward maintenance of the investments. The investor's peer group (other investors like her) supports her decisions to fund maintenance and renovation. The board member's peer group (Her neighbors on a paycheck-to-paycheck budget) will rarely support her efforts to raise funds for anything.

"Why exactly are you raising our monthly dues? Isn't there a cheaper management company out there?"

This is getting long and we're out of peanuts, so I'll try and land the plane. How is this part of the 50-year problem? Because we each only have a certain amount of bandwidth. Our days are full and our calendars jammed. We are adults, we can be responsible; but responsible about something 50 years in the future which I'm only 1/100 responsible for? That's pushing it. Give me a responsibility with ramifications next week and you'll get my best. Responsibility with ramifications in 10 years, that's likely headed for the back burner. Responsibility with ramifications in 50 years and I'm only 1/100 responsible for the outcome? - you've got to be kidding me.

But folks, that's where we are. Those back-burnered and ignored responsibilities of the original owners and their descendants are like chickens coming home to roost. We are facing the results of a 50-year-problem. 
Question - Will we be part of the solution, or simply perpetuate?

In the next post I'll address the 30-Year Reserve Study, and if I can be concise, The 50-Year Time Bomb also. Following that we'll start talking nuts and bolts (literally), and sort out "Why Did They Build These Buildings So Crummy Anyway?"

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