Coveted Country Club Residences Face An Uncertain Future
The once-coveted home in a county club was a dream for millions of Americans.
But now, this lifelong goal is going through a fundamental shift. Due to changing tastes, demographics, high home prices, significant maintenance costs and the diminishing value of country club name cache, many new, younger buyers are turning away from buying country club homes.
All of this is bad news for country club aficionados who pride themselves on belonging to an exclusive club accompanied by a reputation cultivated over decades. This is also the bad news local real estate salespeople don’t like to discuss, but it is the elephant in the room whenever anyone talks about the future of country club residential living.
Country club living is outside the financial grasp and tastes of more Americans. It’s also affecting the future of many club and their residential prices. In some cases, these homes have become negative assets.
“I believe this is a difficult time for most country clubs,” Thomas Feniger, PhD, who has lived at Boca Pointe Country Club in Boca Raton, Florida for 24 years. “Our equity membership is shrinking and there appears to be little demand for such memberships.” His observations are buttressed by other metrics, such as the time country club residences remain in the market and the number of clubs making changes to their business models to accommodate this new reality, and importantly, the changing values of younger buyers, who are often financially strapped.
“The country club life is completely contrarian to the millennial values, mores, and life goals. Millennials are more apt to own fewer possessions, buy smaller cars (if they buy one at all), use Airbnb frequently, travel more, be peripatetic, wander more and settle down less. Owning a massive investment that ties oneself to a specific location doesn’t fit the lifestyle. Millennials tend to pursue experiential quests and are less interested in worldly possessions and locked-in vacations.
“As a result, the country club life doesn’t dovetail well with tastes and lifestyle. I do think that taking a country club residence and opening it up to short-term rentals, something similar to a timeshare, would help sales. A millennial who might like to play golf in one location a few times a year might be interested in fractional ownership” according to Bruce Bronster, a hospitality and real estate partner at Manhattan-based Windels Marx.
Some clubs are hurting today, unable to sell condos and homes due to mandatory club membership purchases, high monthly home owners association (HOA) and mandatory meal purchase expenses and other miscellaneous charges. All of these combined, unavoidable expenses are proving to be very worrisome to younger people with limited incomes. These high expenses are especially troubling to many pre- and current retirees faced with possible cuts in pensions and higher medical costs that could all materialize under the Trump administration.
While a 2001 study estimated that eight million Americans were living in over 20,000 gated communities that were characterized as allowing restrict access to residents and their guests, that number is higher today. New exclusive gated communities, such as the Moonlight Basin in Big Sky, Montana, boast of home price ranges from $1,000,000 to $15,000,000, HOA fees ranging from: $2,000-$5,000 annually (based on the property), mandatory memberships of $50,000 (initiation fee), annual dues ($9,200); and sports memberships ($18,000 initiation fees and annual dues of $4,500.)
Then, there is even the more exclusive Yellowstone Club, Big Sky, Montana, with homes prices ranging from $4,250,000- to $19,500,000; required residential membership deposits of $300,000; annual dues of $39,500; and, a property owner’s association annual fee that ranges from $24,000 to $36,000 based on the property
Yet despite the expansion of exclusive clubs, many older clubs, especially those built in the 1970s and 1980s, are suffering. How bad is the situation? At the Boca West Country Club, Boca Raton, Florida, which carries a mandatory $100,000 membership fee, condos can sell for a few dollars (yes, a few dollars), provided the new property owner antes up all the membership fees. The reason some condos and homes can be sold at “negative pricing,” a real estate term for a negative asset, is that when a property is sold to a new owner, the original owner gets half of their original membership fee refunded. As a result, what looks like a fire sale condo means that the original owner gets to cash out of half their membership.
Nor is Boca West alone. Other clubs in Palm Beach County are facing the same problems as they struggle to attract new full-paying members, while maintaining their golf courses year-round in tropical and arid conditions, complete with a full complement of groundskeepers and culinary staffs needed to provide top-notch service to an ever-demanding membership. The golf course at the Boca Pointe Country Club, Boca Raton, Florida, spends about $110,000 a month to maintain its golf course. This expense is borne by everyone who lives there, regardless of whether they are golf members or not. But for many clubs, containing these costs while attracting new full-amenity members is like shoveling water up a hill. Time is working against this business model and it means significant changes for some in the near future.
The clubs provide great examples of a business model that worked for years as new wealthy homeowners bought into the coveted lifestyle. Many of the clubs were developed in the mid-1970s and 1980s in a different economy and society. But this model falls apart when tastes, life goals and finances change.
These changes are hitting the country club community from many different sources:
Changing tastes. Younger people who are potential home buyers are increasingly becoming renters. This is due to a few factors, mainly the inability to make a down payment and meet more stringent credit standards, but another major factor is a dramatic change in attitudes towards home ownership and work.
For instance, the average young adult expects to spend less than three years with any one company, so making the long-term commitment to country club ownership is problematic. This new attitude reflects the changing nature of the American workplace, including declining employer-employee loyalty, fewer companies offering pensions and stagnant real wages.
As a result, many prospective younger buyers have to make the long-term commitment to country club living and its associated high membership and HOA maintenance costs.
The bottom line is that buying a home is financially challenging for the generation following the Baby Boomers. People born after 1965 are the first generation in American history that will not be better off than their parents. This is causing a fundamental change in how post-Baby Boomers view country club living.
Demographics. There are now 83 million Millennials, or people born between 1982 and 2000, who represent more than one quarter of the nation’s population. Their size exceeds that of the 75 million Baby Boomers, according to a U.S. Census Bureau estimate. In terms of home ownership, people under 35 who own homes is at its lowest rate since 1994, according to the U.S. Census Bureau. Aside from being a larger group than baby boomers, millennials also are very diverse: about 45% say they are politically independent; they are marrying later than other generations; and importantly, “they are not rushing toward the traditional American-dream trifecta of getting married, buying a house and having children.” Also, more are living at home and almost one in five 25- to 34-year-old men live with his parents, so home purchases are being delayed.
High costs of country club residential purchases. Aside from the hurdles of buying an equity ownership that cannot be financed, country club residence owners face assessments, different levels of club dues, annual meal expenditure commitments, homeowner’s association monthly fees, and the other basic expenses of home ownership (utilities, insurance, taxes, improvements, etc.)
Take the case of one exclusive country club in Palm Beach Gardens, Florida, BallenIsles This club is home to Serena Williams and is one widely regarded as being at the top of the list in terms of clubhouse amenities, facilities, golf and tennis courses. It has a mandatory club membership policy with a gold membership of $120,000 of which $68,000 is refunded upon the sale of the property. Of the $120,000 fee, $35,000 is a non- refundable initiation fee. All levels of membership pay the same $35,000 a year. A full golf equity membership is $85,000 and $68,000 is refunded when you sell your home. The club has mandatory membership policy.
At the Polo Country Club in Boca Raton, Florida, there is a $70,000 mandatory membership country club fee and monthly club dues ranging from $1,500-$1,700 a month. Of course, all this is in addition to your mortgages, taxes, insurance and house expenses.
Wage stagnation among younger buyers. Income inequality is widely regarded as being the greatest today than at any other time since the Gilded Age, according to Paul Taylor of the Pew Research Center. Taylor said the current wage disparity among generations is being driven by the rise of technology and this gap “between young and old are at levels never before seen in modern times; so are the economic divides between whites, blacks, and Hispanics and so, of course, is the gap between rich and poor.”
Another report found that since the Great Recession began in 2007, the median wage for people between 25 and 34, adjusted for inflation, decreased in every major industry, except for health care. Their reason for this wage decline is also due to technology and globalization and it has shown itself in reduced savings rates, and a distain for buying houses and cars. “Indeed, the savings rate for Americans under 35, having briefly breached after the Great Recession, dove back underwater and now swims at negative-1.8 percent,” according to an article in The Atlantic. It’s no wonder that buying a house in a country club community is a distant dream to millions of younger workers.
Rising labor costs from country club workers. When many country club residential communities were being built in the 1980s, labor expenses for lawn, groundskeepers and other service personnel were cheaper than they are today. Yet, to maintain the high standards of country club residential living and golf courses, those standards cannot be compromised, so labor cannot be easily cut without a decrease in overall club appearance, including the expensive maintenance of golf and tennis courts. Any drop in these expensive to maintain appearances all affect club prestige.
A February 2015 online survey of superintendent members of the Golf Course Superintendents Association of America in the United States found that the nationwide average maintenance budget for an 18-hole golf course in 2014 was $724,269. The biggest expense of the total maintenance budget was labor and that accounted for 55% of all expenses, excluding capital expenditures. Golf course labor often is non-skilled and immigrant and these labor rates have also been rising.
Radically Changing Tastes
Each generation has its dominant trends and for people under 50, country club living is not at the top of the list. Aside from the significant financial reasons, golf and country clubs are viewed by many as passe. Worse, golf is too associated with Donald Trump and his business symbolism.
A recent article in Alternet, a leftist advocacy magazine, found that “for successful greedheads and their wannabes, golf is the most sacred of sports, the symbol of all that is retrograde and exclusionary in American life. There’s far more to golf, however, than mere inequality or a history of institutional racism and sexism. Golf is also a waste of space and water, and a sinkhole for chemicals poisoning the local aquifer. Think of all the organic vegetables that could be grown on those swards or the walking trails and wildlife sanctuaries that could be established. Think of the affordable housing that could be built on that land. There has to be a better use for the millions of dollars that will be squandered this year on overpriced golf duds and equipment, lessons, playing fees, and memberships in the latest trendy clubs (that these days often have you-know-who’s name on them in large golden letters).”
Deciding What’s Really Important in Life
Millennials and younger people differ from their parents in a few crucial areas, especially a desire to be happy, travel and have new life experiences versus staying in a single job for a lifetime.
There is also a change in priorities that affect home purchases. Since many Millennials have a difficult time making a house down payment, they have chosen different life priorities. One is the distinction between money and happiness. Dr. Thomas Gilovich, psychology professor at Cornell University, who studies the connection between money and happiness, said “our experiences are a bigger part of ourselves than our material goods. You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.” AS a result, many Millennials are spending more money on new life experiences, including travel, rather choosing to buy a luxurious home in a country club community.
Americans Are Getting Poorer
On this topic, there is no shortage of evidence. Consider the following:
- A Federal Reserve Board study that asked respondents how they would pay for a $400 emergency found that 47% of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all.
- In an article in the Atlantic, Edward Wolff, an economist at New York University, found that the median net worth of Americans has declined steeply in the past generation. It has decreased 85% from 1983 to 2013 for the bottom income quintile, down 63% for the second-lowest quintile, and down 26% percent for the third, or middle, quintile.
- Research funded by the Russell Sage Foundation, found that the inflation-adjusted net worth of the typical household (one at the median point of wealth distribution) was $87,992 in 2003. By 2013, it had declined to $54,500, a decline of 38%.
- Nor are these dismal number restricted to lower- and idle-income people. Another study cited in the same Atlantic article found that nearly one-quarter of households making $100,000 to $150,000 annually said they would not to be able to raise $2,000 in a month.
- In this century, per-capita U.S. economic growth has been less than 1% a year on average, and even since 2009 it’s been only 1.1% a year. If the U.S. had been able to maintain postwar 20th-century growth rates into this century, U.S. per-capita G.D.P. would be over 20% higher than it is today, according to a New York Times article.
- The odds of becoming a millionaire for Millennials and younger people have dropped significantly over the past 25 years. If you’re over 62, your odds of having at least $1 million in net wealth are about 1 in 7. But if you are under 40, your odds are 1 in 55, according to a new paper by economists at the St. Louis Fed’s Center for Household Financial Stability. The paper verified the growing wealth gap between young and old. This is the same gap that affects the purchase of expensive homes.
Since country clubs were always considered the place for the rich and famous to enjoy time away from the society’s riff- raff, they have been the brunt of comedies starting in the silent age of movies. Charlie Chaplin, Harold Lloyd, the Marx Brothers, the 3 Stooges, Happy Gilmore and the ultimate parody, Caddie Shack (released 1980) have all parodied the irreverent, anti-elitist, wealth gap to high comic effect. Think Rodney Dangerfield and his Chinese sidekick, Wang, clashing against the Bushwood country club’s board president, the silver-haired Judge Smails (played by Ted Knight), over proper decorum, language and dress. Those were on-screen parodies, but the current generation of new, potential country club residence buyers subconsciously rebel against many of these same exclusive, anti-egalitarian prejudices.
Country Club Homes: Exclusive Residences or Bad Investments?
Gated communities have been around in the U.S. since around 1870 when private streets were built in St. Louis, but they began to attract the attention of academics in the mid-1990s as interest increased in the ideas of social fragmentation and new types of voluntary segregation. Today, the states with the most gated communities are California, Florida, Arizona and Texas.
This became fertile ground for academic studies and popular critiques. The early themes of this work took on the warning of social fragmentation, urban segregation and the emergence of a new type of civic arrangement. Gated communities became symbols and symptoms of a line that was being crossed from one based on a popular, democratic political base to one that was defined by a market-driven civic society, authors Renaud Le Goix and Chris J. Webster wrote in a paper, “Gated Communities.”
But as people created these secure, homogeneous enclaves, it also raised questions about the meaning of the future of citizenship and the concept of community in America. It raised the question whether people living in gated communities were voluntarily isolating themselves from the racially and economically mixed, open society that is the foundation of American democracy. In most cases, gated communities were managed by professionals, so residents gave up their social contract to act as neighbors in exchange for professional management. The communities were also regulated by HOA and covenants, conditions, and rules (CC&R) that were often established by the land developers.
In the book, Fortress America: Gated Communities in the United States (Brookings Institution Press, 1997), authors Edward J. Blakely and Mary Gail Snyder conducted what is regarded as the first study of gated communities and their social impact. In the book, they presented issues related to private versus public rights and were recognized for their position that gated communities are “a dramatic manifestation of a new fortress mentality growing in America.” The authors presented some provocative ideas, such as whether residents of the gated community isolated themselves from the surrounding community.
What Created Gated Communities
The history of gated communities parallels the rise of the middle and upper classes as they sought exclusivity, privacy and security. In the article “Gated Communities and Residential Property Values,” Appraisal Journal, April 1, 2001 by Douglas S. Bible and Chengho Hsieh, the authors found that fenced communities with gates were first developed for the upper class during the early decades of the 1900s, primarily on the East Coast and in Hollywood. In the 1950s and 1960s, gated entries became common for retirement developments. Gated communities grew more popular during the 1980s and 1990s.
Yet while much has been written about the benefits of gated communities, there were not many studies about how property values were impacted from living in one of these developments.
To gauge the impact of restricted access in gated communities on property values, Blakely and Snyder visited gated communities across the United Sates to interview residents, and conducted a survey of more than 400 homeowner associations’ boards in gated communities in Florida and California. Their field research, conducted in 1994 and 1995, describes three kinds of “fortified American neighborhoods, distinguished by the residents’ motivations in limiting public access.”
In the first group, what the authors called “lifestyle communities,” gates were found to provide security and enclose leisure activities and amenities, such as golf and tennis. The second group, “elite communities,” use gates to symbolize distinction, exclusivity and prestige to show a secure place on the social ladder. The third type of gated community is called the “security zone, where the fear of crime and outsiders is the foremost motivation for defensive fortifications.”
The researchers noted that “while life may be more comfortable for residents inside the gates than for those on the outside, gated communities symbolize a larger social pattern of segmentation and separation designed to disassociate and exclude.” They also found that while long-term crime rates are not affected by the installation of gates and fences, residents feel safer, especially when their children play outside.
The “Fortress America” theory suggests that gated communities “encourage economic segregation and are themselves a microcosm of the larger spatial pattern of segmentation and separation.” They argued that the privatization of public services–such as when gated communities provide their own police protection–tends to defeat the very idea of democracy. Furthermore, they find no evidence that gated communities foster greater community spirit even within their confines.”
So if social status, name recognition, reluctant buyers and house affordability are all working against the popularity of country club living, what comes next?
As a resident of a country club community, it’s evident that most of my neighbors are older (in their 70s and 80s), with fewer new young families joining the community. Worse, the country club grapevine reports that club membership is steadily dropping despite more aggressive advertising.
But clubs that have de-linked home sales to mandatory country club memberships should have a better future, even though the large maintenance fees could mean club golf and tennis facilities will become public. But what is certain is that country club communities over the next decade will have to re-invent themselves using a new business model in order to survive.
How to Contact WordPress Company to Get Help For Your Website