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Why Your HOA Dues Keep Rising - Inflation

We are often approached by community members who are seeking to lower their dues and are under the assumption that since past members had lower dues they are being overcharged or the Board is not managing the dues effectively. The reality is that dues should be increased on a regular basis, we typically recommend annually – The reason – INFLATION. That’s the invisible factor that eats away at the purchasing power of your money and in a relatively short period of time has a huge impacts on the funding plan of a community or organization which is trying to prepare for their future in a fiscally responsible manner.

My experience with inflation…

When I was 13 I used to go to the grocery store and buy a candy bar for $0.50 – then sneak it into the movie theaters which cost me $7.50 for a ticket. Well 24 years later when I go to the grocery story I purchase the same candy bar for $1.00 and when I try and sneak it into the theater – I go to jail… Well I should say – If I snuck it into the theater… the movie ticket now costs me $15.00. This is a prime example of how inflation has reduced the purchasing power of my money. It now costs me twice as much to buy the candy bar and twice as much buy a movie ticket – And guess what, that was now just over 24 years ago…

The average annual inflation in the United States is about 3% which halves my purchasing power every 24 +/- years (easier to think of as increasing costs every 24 +/- years). This is right in line with my experience with shopping for candy bars and purchasing movie theater tickets. But guess what? This is also right in line with construction cost data going back over 100 years. So what do we recommend in a funding strategy to offset this inflationary factor? The easiest way to offset inflationary factors is to increase the reserve allocation rate to the reserve account in an amount equal to the inflationary rate which is 3.0%. This usually equates to an increase to the regular HOA dues assessed as well.

So dues should increase with time – if a community is following a fiscally responsible funding strategy then dues will often double about every 24 years along with everything else – candy bars, movie tickets and construction costs.