How is Inflation Impacting Your Homeowners’ Association?

We all know that inflation is affecting lives across the country right now. But have you ever thought about how it might affect your homeowners’ association?

Like every other organization, your HOA operates on a budget. That budget determines fees and allocates resources for both short-term and long-term projects. It should always account for inflation, but sometimes a course correction becomes necessary.

Let’s take a look at some of the ways inflation affects your homeowners' association.

Increased Cost of Goods and Services

As we know, inflation increases prices. That’s just as true for your vendors as it is at the gas pump or grocery store.

Vendors facing higher prices for goods and services will pass those costs along to your HOA.

Your HOA likely underestimated costs for this year. Not through any fault in the budget process, but due to factors beyond its control. The result is an organization underprepared for the rising costs of critical services like maintenance and repairs.

Increased HOA Fees

When expenses increase, a homeowners association must increase its revenue. The only revenue source for the organization is homeowners’ fees. As unpopular as it always is, increases in fees are inevitable in the face of inflation.

The question the HOA board needs to ask themselves is how much is too much. How much can homeowners reasonably be asked to pay? Inflation is affecting community members just as it is the HOA. Raising fees too much is likely to result in non-payment of fees.

There may be legal limits or bylaws affecting how much fees can be raised. Your board needs to know and abide by all regulations that apply.

Reserve Fund Adjustments

Calculating the cost for a major project taking place in the future is always tricky. Unanticipated inflation adds to the complexity of these calculations.

When an HOA plans a budget, they use a reserve study to help estimate costs for reserve fund projects. This study helps guide the budget planning process for long-term projects.

It goes through community assets and estimates their lifespan and replacement costs. While it does take inflation into account, an old reserve study is not going to accurately reflect current rates of inflation.

Even if your reserve study is relatively recent it may be outdated due to recent inflation increases.

Large projects may be hit hard by current economic conditions. Supply chain disruptions, labor shortages, and the increased costs associated with both can dramatically increase the estimated cost of large future projects.

Protecting Your Community

In a volatile economy with significant inflation, the role of the HOA becomes more important than ever. It is the job of this organization to act in the best interests of its members.

It’s scary to realize that estimates are likely too low for next year. But there are things your HOA can do to get ahead of potential budget shortfalls.

Get Revised Estimates

Your HOA should contact its vendors for revised estimates for this year as well as next year. No one wants to find out that prices are going up, but it’s far better to know ahead of time than be surprised and have inadequate funding.

Don’t leave out seemingly small expenses. What is your budget for office supplies? Is it realistic to use current purchasing habits?

It’s also time for a new reserve study. We’ve all been in unprecedented circumstances for a while and it’s easy to get overwhelmed. Having an updated reserve study helps the HOA board understand current conditions.

Those conditions may change as supply chains and labor shortages continue to evolve, but your HOA needs to know what it is dealing with in the present. You can always reassess in the future.

Trim the Budget

Your HOA is responsible for a lot of things, and one of them is avoiding overburdening homeowners with excessive fees. If your new estimates and reserve study show shortfalls, look at places to cut the budget.

A hard look at what is essential to the community and what can be reduced or eliminated is not fun. But it is necessary and you may find more places to reduce costs than you thought.

If your vendors’ prices are going up significantly, check with other vendors for estimates. Look for a less expensive source for office supplies. Decide if lawn care and other landscaping can be done less frequently.

This is a tricky area and one that needs careful attention to balance. Cutting too many corners simply leaves the HOA with larger expenses down the road if less expensive options prove to be inadequate.

Be Flexible and Adaptable

Rigid adherence to a budget is usually a good thing. When factors outside the control of the HOA are at play, it’s important to remember the value of flexibility.

Make your budget a continuing work in progress as circumstances evolve. Rather than planning only once a year, regularly reassess both expenses and revenue. This is always a good idea, but it becomes especially important when economic conditions are in flux.

Adapt to unexpected price increases with a combination of increased fees, budget trimming, and reevaluating the necessary scope of projects. Can short-term or long-term projects be tackled in more manageable sections?

Ask for Help

Being better prepared for the effects of inflation on an HOA is both crucial and overwhelming. Contacting professionals with experience can lead to both a better outcome and less stress for the HOA board.

The first professional to contact is the person doing your reserve study. This document will play a big role in determining both your level of reserve funding and fee increases.

You also need nimble tools for planning. Talk with us to discuss Homey’s financial planning solution and financial modeling feature. We can help your HOA prepare a better plan, taking into account the effects of inflation when establishing fees or dues.

Homeowners rely on their HOA to make every effort to plan for the effective use of funds. We can help you create those plans even as conditions change.