For the past two decades, inflation has had little effect on budgets at HOAs and condominium associations. The inflation rates as measured by the Consumer Price Index (CPI) have fluctuated but only mildly. This past year, all that has changed with the prices for virtually everything going up at a significant rate. The effect of inflation on your community association’s budget is going to be significant. Well-informed Boards of Directors should take steps now to curb those effects. When planning for the upcoming year, old formulas just won’t work because there are going to be significant increases in just about every line item of the association’s budget.
Inflation has a trickle-down effect. For instance, when the cost of fuel rises, as it has, all goods and services cost more. Again, the CPI reflects this with everything from gas to groceries, costing consumers more. Common HOA and condominium association purchases, such as landscaping service, trash removal, and even building materials are going to cost more next year. Even ancillary services such as insurance and management expenses are likely to rise as these service providers are experiencing increased costs to run their business. The bottom line is that inflation impacts every aspect of your HOA or condominium association budget.
At its best, budgeting is a best guess at how much money the association will need to run itself in the coming year. Many associations prepare the upcoming year’s budget by looking at the expenses of the previous year to estimate the upcoming year’s expenses. While that technique has worked in the past, it will not suffice in 2023 because last year’s numbers will not account for the known inflation of this upcoming year. The current inflation rate is roughly 7.5% and that may be a good place to start. However, individual line items need to be examined to determine if a 7.5% increase is enough. It is possible that certain line items should be increased by even more.
The effect of inflation on the upcoming year’s budget will be felt by home and unit owners in the form of an increase to their common fees or HOA dues. The decision to raise fees is always unpopular with owners but given the amount of news coverage given to inflation this past year, it really should not come as a surprise.
Boards should also prepare for the possibility that there may be an increase to their level of homeowners who don’t always pay on time. Some may even find it difficult to pay at all. The bottom line is that inflation looks to be here to stay for a while. Many industry analysts predict several years of significant inflation. Armed with that information, it is in the best interest of the HOA or condominium association Board of Directors to address the problem head on. Otherwise, many associations will see their budgets busted by inflation. In worst case scenarios, that could mean running out of money to operate the association and/or the need to levy Special Assessments (always unpopular with owners) just to pay for routine association services.
Speak with your Cardinal Property Management Association Manager today to address the likely effects of inflation on your HOA or condominium association budget. Count on us for solid financial management advice, including how to prepare your community association budget to avoid the pitfalls of inflation. Failure to plan is a plan to fail. We’ll make sure you do not fail.