Growth Tailwinds and Recession Resistance in HOA/Condo Management

As mentioned in the prior post, investors have expressed significant recent interest in the HOA and condo management industries. In this post, we'll cover some of the attractive industry dynamics that account for such investor interest.

HOAs Represent A Significant (and Growing) Portion Of The U.S. Single Family Housing Market

Of the estimated ~87 million current single family dwellings in the U.S., ~29 million are members of HOAs or condo associations. Of the ~29 million dwellings, ~26 million are members of HOAs that outsource management, whereas ~3 million self-manage their communities. Trends suggest the mix of HOA dwellings will continue to rise; an estimated 80%+ of new homes in the U.S. are built in HOA communities. There is a generally higher concentration of HOA communities in western states (more new-build mix) and southeast (particularly Florida, due to focus on amenity and older demographic desiring additional support through third-party management).

The HOA Management Industry Demonstrates Recession Resilience and Is Positioned for Continued Growth

COVID-19(specifically, 2020) and other recessions have had a relatively limited impact on operations of HOA/condo management companies. In 2020, most management companies' activities were deemed essential, and the partial migration to conducting HOA board meetings virtually actually helped association manager burnout levels and retention. Declining home sales' (and associated homeowner fees) impact on HOA/condo management companies is the most immediate demonstration of declining economic activity on the bottom line of management companies, however, such a decline can be offset by higher delinquency charges or higher bank earnings typically associated with such economic environments.

CAM Advisors has compiled an overall outlook for HOA/condo management industry growth, as shown below.

In a more conservative case, in which housing starts are muted, fees escalate at 2.0% annually, and very few HOAs convert from self-managed to managed, the HOA/condo management industry should grow at a rate just above long-term GDP growth. In a base case, in which housing starts resemble an average of 2013-2023, fees grow at 5.0% annually, and conversion from self-managed to managed is a reasonable 0.50%, the industry demonstrates a very strong annualized growth rate of 6.2%.

For more information on the HOA management industry, valuation metrics, or other questions, please email contact@camadvisors.co.

‍Sources: CAI, HUDuser.gov, industry discussions, Guidance on the Essential Critical Infrastructure Workers.‍