Golf Course Communities

The LA Times has an interesting article on the economic misfortunes that have befallen many golf clubs—and especially those courses that were built as a part of a golf community. Those courses were on a financially sound footing as long as the developer was selling houses at a course-inflated price. But in today’s market …

I’ve often wondered about the economics of those golf course communities and whether the developers were required to set aside a pot of money to help keep the place running. With people buying the homes at premium prices, the implicit promise is that the course will be there forever. But I think you’d have to be a fool to actually believe that. Further, I’m sure that there’s something in the fine print of the purchase agreement absolving the developer of any such promises.

Not that you’d be likely to find the developer anyway. Friends in real estate tell me that they’re often not the most reliable of businessmen. A favorite tactic, apparently, is to form a corporation, build a development, and then dissolve the corporation as soon as the work is done, immediately ending their liability and ensuring that homeowners have no one to turn to if something goes wrong.

The egregious case I’ve ever heard of occurred just down the road from GolfBlogger World Headquarters. There, a developer built a large community adjacent to an existing course, promoting the places as “golf course homes.” According to an acquaintance of mine who bought one of the houses, however, it was not advertised that the developer didn’t actually have a stake in the course. Many—my acquaintance included—just assumed that there was a connection. Then, when the course subsequently went out of business, the homeowners were outraged at the perceived loss of value. Since the developer couldn’t be held responsible, a movement started to get the township to buy the property and maintain it as a course. The homeowners, in effect, wanted the community-at-large to subsidize their golf course properties. The property was indeed bought by the township, but current plans are to turn it into a multi use recreational facility.

It must be nice to be able to use tax dollars to shore up the value of your “golf course home.” And it must be great to be a developer who can take advantage of a situation and legally make off with millions.

I shouldn’t single those people out, though. One of my biggest beefs about my area is that developers and new homeowners do not bear the true costs of their sprawling tiki-tacki starter mansion communities. These developers buy a huge tract of farmland, throwing up hundreds of new houses before disappearing with their profits behind corporate maneuvers. That leaves the externalities to be borne by the community at large.

A couple of years ago, a developer threw up a new tract in a forest across the road from my neighborhood (which dates to the 1940s). Those new houses have put a strain on the infrastructure, but it’s not the developer or new owners who have paid for that; it’s the existing community. We are, in effect, subsidizing their home purchases.

The additional runoff has overwhelmed the existing storm drain system and reservoir, and as a result, all homeowners in the area have been hit with a substantial one-time charge from the local drain commission. A new water tower eventually will be needed to service all of the new houses—and I’ll be charged for that also. The new traffic has greatly accelerated the deterioration of the roads, and the additional kids have resulted in a crowded local elementary.

Much of this could be eliminated if the local zoning board would develop a backbone, and insist that developers put up bonds to cover the externalities. Our board, however, is apparently largely bought and paid for by the developers. And in the rare instances when they actually stand on principle, they get buried under threats, lawsuits and court summons until they give in.

Which brings me back to the golf course community developments. I don’t think I’d buy a home in one unless I had legally verifiable assurance that there was a pot of money to help keep the course running—a sort of course trust fund. I’m sure that the developers keep the courses running by subsidizing them with the proceeds of home sales—thereby ensuring further inflated home sale prices. But what happens when the last home is sold?

According to the LA Times article, in some cases rich investors step up to take over.

Or you can always get your local government to force your neighbors to subsidize you.

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3 thoughts on “Golf Course Communities”

  1. Here in the chicagoland area you really did not see a discount on prices( this summer) or courses closed.
    I think the courses are waiting to see what happens this year in the warmer climate states for the 2010 season.

    Which tells me about their prices, with tee times down and still charging the same price, somthing not right.

    The golf industy is in for a wake up call in 2010.

  2. Sidvicius … perhaps in Chicagoland there still is less supply than demand. Here in Michigan, the opposite is true … probably in other places as well. We saw DEEP discounts this summer. I bought a two year pass at a local course for $200.

  3. Your cautions about purchasing a home with promises of subsequent amenities is right on the money.  The world is full of gullible people too willing to accept empty pledges of future action. Unfortunately, many people believe that once one makes a poor decision, society owes them a solution or restitution.


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