Colorado Bans HOAs From Banning Home Businesses

Homeowners associations are the most, and the least, libertarian form of governance.


This past Friday, Colorado Gov. Jared Polis signed a new law that forbids homeowner associations (HOAs) from prohibiting home-based businesses.

HOAs are still within their rights to regulate parking, noise, nuisances, and the aesthetic features of a home-based business. But they can no longer flatly ban them.

According to the governor, this is a good pro-business, deregulatory policy.

"Colorado is a state of entrepreneurs and small business people, and we should get the government and HOAs out of the way and let people succeed," he said on X. "Now your HOA won't be able to prevent you from running a home-based business in Colorado and our state is even more friendly for small businesses."

It's a bipartisan attitude.

The law banning HOA home business bans passed through the Legislature with unanimous support in the Colorado Senate and a sole dissenting vote in the Colorado House.

Colorado's law already prohibits HOAs from banning flags, political signs, and religious symbols. HOAs can still regulate the size and placement of these ornaments.

Libertarians would be forgiven for having mixed feelings about the new policy. HOAs manage to be simultaneously the most, and least, libertarian form of governance.

On the one hand, they are private, (theoretically) voluntary organizations created by property owners to make the commons a little less tragic, deal with collective action problems, and prop up everyone's home values. They're not quite the burbclaves from Snow Crash, but they're not that far off.

On the flip side, HOAs have a well-earned reputation for enforcing petty and invasive rules against homeowners who just want to be left alone. If your grass grows too high or your trash bins are still at the curb after trash day, odds are the local HOA will slap you with a fine or even place a lien on your home.

That's closer to Nineteen Eighty-Four than anything Neal Stephenson ever wrote.

Certainly, if Colorado's new law were to apply only to local governments, one would be hard-pressed to come up with a libertarian objection to it.

However, by regulating HOAs, the law does limit private property owners' freedom of association and contract. No longer can homeowners voluntarily opt into purely residential communities.

For private property absolutists, that's enough to condemn Colorado's new law. The law is also a loss of choice and efficiency.

The fact that some HOAs do have flat prohibitions on home businesses is proof that there is a preference amongst some homeowners for exclusively residential neighborhoods. HOAs voluminous other restrictions on the type of grass you have to plant or how many pink flamingos you can put on your lawn is more evidence still that lots of property owners have pretty specific, restrictive tastes in their choice of neighborhood.

Research has found that people are willing to pay more for properties covered by HOAs as well, which is more evidence that there's market demand for private neighborhood regulation.

Many people aren't neurotic enough to care about others' lawn ornaments. Local governments shouldn't be in the business of regulating them. For people who do care enough, HOAs are an effective, private, consensual tool for enforcing community standards.

The libertarian case against HOAs therefore can't be based on them being ridiculous. Rather, it would have to be based on them being involuntary.

On the surface, HOAs are voluntary organizations. Homeowners and homebuilders create them. People agree to their rules when they purchase a property covered by an HOA.

This surface voluntarism is muddied by the fact that local governments will often require that new subdivisions and planned communities be covered by an HOA. They might even require a developer to write in particular HOA rules and regulations as a condition of giving them permission to build new homes.

Even where HOAs aren't explicitly required, local governments can require shared amenities and common spaces that will have to be managed by an HOA.

Similarly, local laws in places like Houston, Texas, allow neighborhoods to create deed restrictions by a supermajority vote of property owners. Those arrangements are also less than fully voluntary.

So even if most homebuyers in a new subdivision wouldn't want an HOA, they end up living under one anyway.

Once created, these organizations (like many organs of local government) end up being controlled by people with extremely restrictive preferences. That's even more likely if most homeowners are apathetic about being part of an HOA in the first place.

Nevertheless, the new Colorado law bans HOAs from adopting home business bans regardless of whether the HOA was voluntarily created.

To be sure, distinguishing between HOAs that are truly voluntary creations and those that were involuntarily foisted onto property owners is probably impossible for the purposes of legislation.

The best thing that policymakers can do now is to get rid of local or state policies that could force property owners into such arrangements.

Arizona already bans local governments from requiring HOAs. A provision of Arizona's now-vetoed Starter Homes Act would have banned local governments from requiring shared amenities that would need an HOA.

More states should consider such policies. Where they exist, policymakers should leave HOA rules alone, regardless of whether they allow lawn gnomes or not.