You may have noticed that everything is more expensive than it was even a year ago.
Inflation has caused prices to rise and it’s hard not to feel the squeeze. Whether we’re talking about gas, groceries, services, or little luxuries – we’re all paying more.
What does this mean for your HOA?
As you and your board were creating budgets and making projections, you were likely not thinking about the impact that inflation could have on your association and your community. After bouncing back from the economic impact of the global pandemic, this is another situation that demonstrates the importance of being prepared and adaptable.
Here’s how we’re preparing the California HOAs we work with for the squeeze of inflation.
Inflation and HOAs in California
The Consumer Price Index (CPI) is high, and it’s still rising. If you don’t prepare your HOA, there may be some serious financial consequences.
We’re in a period of inflation because the value of money has decreased, which sends the cost of goods and services up. Your association requires water, landscaping, vendor services, materials, and supplies in order to keep the community well-maintained, attractive, and compliant with bylaws, rules, and regulations.
In some industries, incomes rise with inflation. This is not standard across the board, however, so taking on higher prices does not necessarily come with the relief of more income. That makes it difficult to increase dues and expenses, even if huge cost hikes make it necessary.
There’s a positive here.
With inflation, property values have likely risen, too. While this is good news, it’s often hard to celebrate when there’s so much being demanded of consumers and homeowners in your HOA.
Here’s how your own association may be feeling the effects of inflation:
- Higher landscaping bills
- Higher repair bills
- Longer waits for work due to labor shortages
- Higher energy prices
- Higher HOA insurance premiums
- HOA projects may suddenly seem under-funded
These are just some of the most standard examples. Your HOA may be uniquely affected by particular expenses that were once easy to work into the budget but now just seem impossible to pay for. If your board is not consistently meeting to discuss how this should be handled, you should begin having those discussions now.
How to Help Your HOA Weather the Inflation Storm
It’s challenging, but it’s not hopeless. If you’re willing to do some planning and strategizing, you can make sure that everything remains funded and functional.
- Plan conservatively for capital expenditures. Expect that costs will increase over the next year or two. You’ll have to budget extra for labor costs, fuel costs, and make sure you’re looking at any potential supply issues.
- Consider an updated reserve study. If your board has not commissioned a reserve study recently, the information you have might be outdated given the recent economic circumstances. Evaluate your reserve and decide if you’re comfortable with where it is or if you need to shore it up a bit. Some boards will take measures they might not have previously considered, such as taking on an HOA loan. This may be necessary if you’re already in the middle of a project that has grown more expensive. You’ll need to cover those costs you did not initially anticipate. If your HOA is in sound financial health, you can likely negotiate a loan with a low interest rate, even as those are rising, too.
- Adjust your budget. You’ll need reliable forecasting data in order to prepare your annual budget. Insurance costs are likely to need more dollars allocated, and even if you included a cushion for inflation in previous budgets, you’ll want to go a little further now. Cost of living increases usually hover at around 2 percent when we’re talking about budgets, but your next budget should consider a 4 or 5 percent increase to accommodate the current CPI.
- Budget for higher delinquencies. Hopefully, your homeowners will continue to pay their dues and fees on time. Typically, an HOA can expect their delinquency rate to hover between three and six percent. If your residents aren’t able to pay, or if they’re not prioritizing their HOA fees in their own personal budgets, you may see higher delinquencies which can impact your cash flow.
Preparation is critical when you’re thinking about how your HOA can manage to stay strong during inflationary periods such as this. It’s a good time to rely on your expert partners. Talk to your accountants, property managers, and insurance agents. Listen to their advice and consider all your options when you’re budgeting, planning, and evaluating your reserves.
Communicating with HOA Homeowners
Annual HOA dues may go up.
Your homeowners aren’t going to like the news that they now have to pay more every month, quarter, or year for the privilege of living in your HOA. But, they also understand our current economic climate and the impact that inflation has on your community. They understand that the amount of money needed for annual upkeep of the community will likely require an increase in annual dues to cover the costs.
Check your founding documents and your bylaws. Sometimes, the fees you collect must be directly tied to the CPI. If an increase is inevitable, give your homeowners notice. Provide them with an opportunity to comment or share their thoughts. Prepare to listen and encourage dialogue.
What else can you do?
Finish those in-process projects as quickly as possible. The longer they take, the more expensive they’ll become. Analyze your budget for inflation every year. Determine what you’ll need, whether it’s an assessment or increased fees. Check on your reserve.
Keep your homeowners in the loop. You want to provide a few months of notice before fees increase so they can adapt their own household budgets or scheduled finances accordingly.
If you’d like some help and advice that’s specific to your unique HOA, please don’t hesitate to reach out to us at Hill & Co. We’re a professional HOA management company in California that provides full-service and virtual support services to associations just like yours.