Author: Zachary Bartsch

How HOAs are Born

Zachary BartschLeave a comment

I live in Florida and there is a lot of residential construction down here. It’s not typically people just deciding to build a house on some isolated plot of land. A large portion of construction is private or semi-private neighborhoods built by developers. They often include manicured common spaces and strict Home Owners Association (HOA) rules.

The typical procedure is that a developer purchases a large parcel of land, and then starts building. Before the first house is even sold, the HOA is established and the governing board is packed with developer representatives.  Written into the HOA bylaws is that the developer maintains a preponderance of the HOA representation during construction. This makes sense. ‘Nice’ neighborhoods command higher property prices and the developer has often invested *very* large sums of money. Certainly more money than it’s willing to risk at the hands of a sloppy, owner-controlled HOA.

Best practice differs by developer.

Typically, the residents will have seats on the HOA board in some proportion of development project completeness. For example, if 75% of the total planned lots have been built and sold, then the developer may retain 2/3 or 3/5 control of an HOA board. The developer finally relinquishes all HOA control after 100% of the planned units are completed and sold.

Ignoring policies for beautification and such, a HOA boards under developer control act differently from those that are resident controlled. As I said, the developer has full discretion on HOA policy, practically speaking, because it maintains a majority of the voting members. But, HOA fees are *not paid* by the developer.[1] Only homeowners pay HOA fees.

For example: Not everyone wants cable TV. But the developer knows that home-buyers want the option for cable TV. Typically, one of the first HOA orders of business is to pay for monthly cable TV. Every single unit pays for cable TV through their HOA fees – whether they use it or not – in exchange for the cable company laying cable lines and providing access. Typically, these contracts are often a decade in duration, after which time the contract can be cancelled and owners can individually decide whether to pay for cable. It’s not obvious that an owner-controlled HOA would pay for cable and have lines laid in the first place (Satellite TV anyone?).

To be clear: The developer sets the HOA policy priorities and determines the HOA budget. Then, the owners pay the quarterly HOA fee. Can you say Principal-Agent problem? Early HOA activities include less resident engagement because residents don’t much affect outcomes. The developer also doesn’t mind higher HOA fees because it doesn’t bear the cost. Do you expect your HOA to put contracts up for bid, say, to do landscaping, pressure washing, etc.? If your HOA is developer-controlled, then you should expect no such thing. Putting contracts ‘up for bid’ is time consuming and reflects a concern for costs. Not to mention that the quality of the bid work may be variable. Developers want high property values and they want them dependably. HOA fiscal prudence, besides solvency, is not a priority.

Having said all this – it’s true that your neighborhood may be ‘nicer’ due to developer control of the HOA. Depending on you preferences, this might align nicely with your priorities. If that’s true, however, you can expect to be less happy in the long-run when your neighbors ultimately gain control of the HOA.

I’m on my HOA board and it’s now 100% privately owned. There are still principal-agent problems. But they are much easier to address now that everyone on the board pays HOA fees. Our problems and our opportunities are truly ours.

[1] Sometimes, the developer will provide a loan to the HOA to provide for initial management costs.

Probably Proportions

Zachary BartschLeave a comment

Statistics is hard…

I want to share a conversation about proportion Vs. probability.

My friend, Corey DeAngelis, has a new research paper that measures the link between school district unionization and in-person re-opening in the time of Covid-19.

He promoted it on Twitter – but little did he know that a member of the statistics police was on patrol…

Am I splitting hairs? Of course I am. Do most people know what he means? I think so. Is the distinction important? You betchya.

Corey, sent me a private message with the appropriate response:

Oh, yes – really.  Speaking probabilistically when we don’t have all of the information is so very tempting. To us the observer, lots of things appear probabilistic to us that are deterministic in nature (Have you ever played the board game “Don’t Wake Daddy!”, “Hot Potato”, or “Musical Chairs”? There is a process that determines when daddy will awaken or when the music ends). Not knowing the underlying process makes the experience appear probabilistic. But appearances can be deceptive.

Often, people speak as if they are taking a random draw from a sample. That can be probabilistic.  Given a draw of school districts, the likelihood of selecting an opening school from non-union districts is greater than choosing an opening school from a union district. This is entirely right. What is not right is saying that teacher-unionized districts are “more likely” to stay closed.

The decision to stay closed or to open is a product of collective choice – the decisions of several parties with diverse interests. Of course, we don’t know every single influence on the decision. But we do know that the outcome follows a pattern. A lower proportion of schools open in teacher-unionized districts than the proportion in non-union-districts.

Researchers often talk about their sample as if it is reality. A random draw from a sample has a probability. Nobody is randomly drawing an actual school district and expecting a probabilistic process to determine the policy outcome. Just ask yourself: “Does the sample proportion tell me an empirical probability?”

*Note: This is why we have different language when using a standard normal distribution.

“What proportion of area is to the left of z*=1.5?”

“Given a random draw from a standard normal distribution, what is the probability of selecting a value that is less than 1.5?”

One describes randomness. The other describes an already determined outcome.

Note: Yes, this kind of behavior does have implications for one’s popularity.

A Covid Conversation… But with Humility.

Zachary Bartsch1 Comment

We know WAY more about Covid-19 than we used to. But there is plenty of appropriate and inappropriate incredulity concerning the data meaning, validity, and implication. I want to take a minute and give it the good ol’ Stat – 201 college try. Here’s the level-headed and appropriately humble Covid statistics conversation.

A: “The US has more cases of Covid than Portugal.”

B: “Yes, but that’s not important. They are very different countries. After all, 65% of people in Portugal live in urban centers. For the US, that number is 80%. Obviously, people being close together, such as in urban places, will contribute to more Covid cases.”

A: “OK. Fine. They may be incomparable. But the US has more cases than the UK, which has a similarly urban population of 83%.”

B: “Yes, but the US is larger. The UK has a smaller population – Of course the US has more cases.”

A: “Ah! And the US also has a Covid positivity rate well in excess of the UK.”

B: “Hmm… That is something. The problem is that the testing is not administered in the same fashion in both places (or across time). That is, neither set of tests is a simple random sample of people and neither is biased in sampling in the same sort of relevant ways.”

A: “But how do you know that the samples aren’t collected in the same sort of ways? Someone feels poorly, then they go and get tested. Isn’t that how is works everywhere?”

B: “Not necessarily at all. Some countries and municipalities offer free testing. Other places have more or less scarcity of tests and surely that affects whom they decide to test. Not only that, different people are differently willing to get tested (maybe they’d have to involuntarily stop working, for example). My point is that the testing samples are not both biased in favor or against positives in the same way and we have little way of telling either the direction or magnitudes. The fact that both countries test a similar proportion of the population doesn’t address the sampling method.”

A: “OK. Well, I suppose that we ought not try at all then, according to you? Isn’t some problematic data better than none?”

B: “Problematic data is not better than none at all if we have good reason to think that there isn’t enough in common between sample collection methods to make valid comparisons.”

A: “Right, so you’re saying that we have to be agnostic.”

B: “In some sense, yes. But rather than Covid cases, we can track relevant variables whose sampling is more comparable. Hospitalizations are better, but we still have the issue of selection bias among those being admitted and a bias due to different hospital capacities between localities. The best measure is the number of deaths due to Covid. People can’t elect out of that sample.”

A: “Hm… Ok. But while total deaths is a more dependable statistic, it is less relevant. Of course deaths matter a great deal, but Covid makes people feel terrible and may even have long term effects.”

B: “You’re right. Covid deaths Vs cases has the trade-off of relevance Vs dependability. Arguably, deaths are the most important possible symptom – although I take your point that it’s not the only relevant symptom. Ultimately, however, the death numbers are more dependable and we should use them if we want a high degree of certainty.”

A: “Fine. The US has more Covid deaths than does the UK, both in level and in deaths per thousand of population.”

B: “Yep. You are right. But the US has more Covid cases, so of course it has more Covid deaths than the UK. The correct statistic is, given a Covid diagnosis, how likely are you to die of Covid? In the UK, a much higher proportion of people with a Covid diagnosis die. In other words, Covid is more dangerous in the UK than it is in the US.”

A: “Time out. Two things: 1) Didn’t you say just a moment ago that the testing data wasn’t reliable enough? Now you’re using it as if it’s reliable. 2) If we are making a cross country comparison, then can’t we just say that a person, randomly drawn from the population, is more likely to die from the Covid in the US than in the UK?”

B: “Mea culpa. You’re right on both points. At the end of the day, a US person is more likely to die of Covid. But, in the UK a person with Covid may be more likely to die. So what do we do about that?”

A: “Good question…”