Most people are familiar with inflation and its recent effects on the U.S. economy. In fact, over the last couple of years, inflation has affected nearly every aspect of daily life, from groceries and fuel to utilities and home repairs.
These rising costs are not just felt by homeowners, however. Homeowner’s associations (HOAs) are also affected by inflation. That is why it is so important for your Board to understand inflation and its impacts on community association finances. The information in the rest of this article can help you navigate our current economic challenges while also continuing to provide the services and amenities your residents expect.
What is Inflation?
To understand inflation’s impacts on HOAs and how to manage it, you need to know the exact definition of inflation.
Inflation is the rate at which the prices of goods and services increase over time. Inflation happens naturally all the time. However, the rate of inflation—how quickly or slowly the prices rise—varies.
In the last few years, the U.S. has experienced higher inflation, which can create many financial challenges for businesses, households, and community associations alike. For HOAs specifically, inflation can raise the cost of vendor services and raw materials, making it difficult to maintain the community and complete improvement projects.
How Does Inflation Impact HOA Operating Costs?
Of all of the potential effects of inflation, the rise in operating expenses is most often felt by HOAs. Because HOAs rely on many service professionals to keep the community running, rising costs across the economy often lead to higher association expenses.
Here are a few ways that inflation most impacts HOAs.
- Vendors and other service providers: As vendors and service providers experience higher equipment, transportation, and material costs, they will pass those expenses on to the HOA, raising the costs of their services.
- Maintenance and repair costs: During periods of higher inflation, the cost of materials, such as lumber, concrete, asphalt, etc., can rise, making repairs more expensive.
- Utility expenses: Your HOA may be responsible for utility costs associated with your common areas and amenities. Rising prices for electricity, water, sewer services, and natural gas will be felt in your budget.
- Insurance premiums: Increasing insurance costs can become a growing concern for many community associations, as inflation often contributes to higher premiums.
Tips for Managing Inflation
The bad news is that inflation is here to stay. But the good news is that your board can take steps to minimize its impact on your HOA. Here are a few of our top tips for managing inflation.
- Build a conservative budget that accounts for potential increases in all costs.
- Update your reserve studies regularly to ensure the reserve is funded appropriately.
- Evaluate your vendor rates to ensure they are competitive for your area.
- Prioritize preventative maintenance.
- Use long-term planning to keep your HOA financially stable.
- Partner with a professional community association management company, such as ACRI Community Realty.
Contact ACRI Community Realty, and our professional team will work closely with your Board to develop strategies to keep your community financially stable and thriving, even during periods of high inflation.
