Here in 2023, the impact of inflation on condo and homeowners’ associations (HOAs) has become a major concern for board members. One of the significant impacts of inflation for HOAs is the increase in operating costs. HOAs have several expenses to manage, including management, insurance, ongoing maintenance, landscaping, utility bills, and other monthly costs. With inflation, these expenses are increasing. So – is your income (homeowner assessments) keeping up?
Another significant impact of inflation on HOAs is the potential increase in delinquency rates. When inflation occurs, the cost of living increases, which can make it more challenging for homeowners to keep up with their assessments. This can lead to a rise in delinquency rates, making it even more difficult to pay all the increasing costs facing the association.
Inflation also affects the HOA’s reserve fund. The reserve fund is set up to cover expected repairs and replacements of community assets. Inflation can reduce the purchasing power of the reserve fund over time, undermining the association’s ability to pay for necessary projects.
What can board members do to mitigate the impact of inflation on their communities?
Here are some steps you can take:
- Review the Budget Regularly: Board members should review the HOA’s budget regularly to see what expense categories are consistently above budget. This will keep you from any “big” surprises.
- Increase Assessments: The board may need to increase assessments mid-year to cover rising costs. Most budgets are lean to start with. If expenses are higher than expected, income needs to increase or the association will dig a hole for itself in the following year. Don’t let your problems get big! Communicate regularly with the homeowners so they are not surprised. Likely they’ve already been making adjustments in their own household.
- Consider Energy-Efficient Upgrades: With utility bills being a significant expense for associations, board members should consider energy-efficient upgrades to reduce operating costs long term. Upgrades such as LED lighting, or changing out old and inefficient boilers and other major pieces of equipment may significantly reduce energy bills. Here’s 3 ways you can reduce your HOA’s utility bills!
- Encourage Timely Payment of Assessments: The association’s only income stream is owner assessments, so the board can’t get casual about communicating this simple fact and following up on delinquent owners. The board may also consider offering payment plans to homeowners who are struggling to keep current, so their income to the association doesn’t fall to zero.
- Get a Reserve Study for your community! Working with a reserve study professional can help evaluate your community’s assets along with properly planning for the future. Again – keep your problems small. Don’t ignore the truth of the high cost of ongoing deterioration. Figure out what projects need to be done, when, at what cost, and which ones can be safely deferred. Projects ignored only get bigger, they don’t go away. While painful, it’s easier for homeowners to face a small assessment increase rather than pretending the costs aren’t there… creating an inevitable large special assessment in just a few years.
By taking these steps, association board members can ensure the financial stability and well-being of their communities for years to come. If you want to get your own Reserve Study for your community, please find your location here to get in contact with one of our trusted Reserve Specialists today!