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Private governments, public authority : homeowners’ associations and their impact on local public finance Cheung, Ronnie King Gi

Abstract

This dissertation examines the impact of homeowners' associations, an increasingly popular innovation in public service provision, on local governments and city residents. An introductory chapter (Chapter 2) outlines the increasing role of the homeowners' association in urban housing development. It overviews the history, motivation and governance of homeowners' associations in American housing markets, and it compares them to other methods of collective decision-making. As local governments have transferred public authority to these private associations, homeowners' associations can be' considered a form of residential private government. The goal of the three papers of the thesis is to examine the interactions between residential private governments, traditional local governments and city, residents. The first paper (Chapter 3) identifies the impact that homeowners' association membership has on local government expenditures. A key contribution is the construction of a thirty-year panel data set of homeowners' associations in California. Estimation results suggest that local governments have lowered their expenditures in response to the increasing membership in private governments. However, the response differs depending on the public service considered. Local governments download services that are highly substitutable by private providers, such as garbage collection and parks, but they do not download services with public good aspects, such as roads and government administration. The second paper (Chapter 4) studies property tax limitations as a motivation for why homeowners' associations have become so popular. The paper is structured in two parts. In the first part, a theoretical model examines how the decision of whether to join a homeowners' association may be altered by the imposition of a property tax limitation. In the second part, an empirical model tests the theoretical implications by using data on homeowners' associations in the era of California's Proposition 13. The third paper (Chapter 5) extends the canonical theoretical model of private government by introducing a housing market. Equilibrium is described in terms of the interaction between homeowners, the homeowners' association and the local government. The relative elasticities of housing and of public goods play a key role in interpreting the equilibrium conditions.

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