Collective action in apartment building management in Hong Kong

Habitat International 38 (2013) 10e17

Contents lists available at SciVerse ScienceDirect

Habitat International journal homepage: www.elsevier.com/locate/habitatint

Collective action in apartment building management in Hong Kong Daniel C.W. Ho 1, Wei Gao* 5F, Knowles Building, Department of Real Estate and Construction, The University of Hong Kong, Pokfulam Road, Hong Kong

a b s t r a c t Keywords: Collective action Common pool resource Building management Apartment building Property management company

With the expansion of the world’s population, apartment buildings have become popular, especially in metropolitan areas all over the world. Although apartment buildings could economize on the use of land, they may generate collective action problems among owners in the building management process, resulting in a “tragedy of the commons” in the urban environment. However, in the literature, there has been a lack of research that has investigated collective action problems in building management. In order to fill the gap, this study surveys collective action in apartment building management and proposes to utilize the institutional analysis and development (IAD) framework to analyze their problems. Making references to the literature on collective action and drawing from studies of common-pool resource management in particular, this paper classifies collective management actions into four categories, namely: 1) rules design, 2) rules enforcement, 3) maintenance decision making, and 4) performance monitoring. It further illustrates the application of the IAD model by empirically investigating a specific collective actiondthe appointment of a property management company (PMC). By using the logistic regression model for 2989 single block residential apartment buildings in 18 districts in Hong Kong, this paper will show that building condition, building location, the number of owners, and the presence of an owners’ organization each have a different impact on a property’s likelihood of appointing a PMC. The results of this paper should shed light on both collective action theory and building management. Ó 2012 Elsevier Ltd. All rights reserved.

Introduction The term, ‘tragedy of the commons’, raised by Hardin (1968), has been famous for over 40 years. It describes a situation that open-toall resources are unable to escape degradation. Since then, research has been extended to study common-pool resources (CPRs). Much evidence, both against and for Hardin’s arguments, has been published. A consensus of the research is CPRs are inclined to be overexploited, but the overexploitation could have been prevented or mitigated by proper institutional arrangements (Dietz, Ostrom, & Stern, 2003). In spite of ample evidence of CPR management, most studies have focused on natural resources (e.g. fisheries and forests) in rural areas. Few have concerned man-made resources in urban environments. One important man-made CPR is an apartment building, which is defined as a residential built structure that consists of individual units, common areas (e.g. corridors), and common facilities (e.g.

* Corresponding author. 535A, 5F, Knowles Building, Department of Real Estate and Construction, The University of Hong Kong, Pokfulam Road, Hong Kong. Tel.: þ852 68463152; fax: þ852 2559 9457. E-mail addresses: [email protected] (D.C.W. Ho), [email protected] (W. Gao). 1 Tel.: þ852 2859 2146; fax: þ852 2559 9457. 0197-3975/$ e see front matter Ó 2012 Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.habitatint.2012.09.001

a drainage system). It is governed by a co-ownership arrangement, under which building owners usually have exclusive occupancy rights to their individual units, but co-own the common parts with other apartment owners. Although the specific forms of coownership vary from country to country (e.g. condominiums in the United States, the strata-titled system in Australia, housing cooperatives in Sweden, etc.), apartment buildings have gained in popularity all over the world. For instance, 27.5% of Sydney’s population (Easthope & Bandolph, 2009), 84% of Singapore’s (Yeh & Yuen, 2011b), and over 95% of Hong Kong’s (Lai & Yik, 2011) dwell in apartment buildings. Bound by co-ownership arrangements, apartment owners have to cooperate in the use and upkeep of the building. But their ability to manage the building collectively remains a question. Despite being under the same roof, owners tend to be apathetic toward building management (Ho, 1993; Stewart, 2003; Yau, 2010b). They have a tendency to take an advantage of others’ management efforts, since the outcome of good building management is a comfortable living environment whose enjoyment cannot be internalized by contributors. Because of free riders, difficulties arise in the building management process. For instance: maintenance funds are usually inadequate to cover maintenance costs; management committees have trouble filling vacancies; and the

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17

attendance rates at general owners’ meetings are low. In addition to such apathy, owners are inclined to overuse the common parts of their buildings. For example, some may put their private possessions in staircases, which obstructs the means of escape. They may erect rooftop structures and partition their units without considering the overall structural safety. Owner apathy toward building management, in conjunction with their overexploitative behaviors, not only deprive them of the opportunity to enhance their property values (Chau, Leung, & Yiu, 2003), but also place their properties at risk of accidents (Leung, 2003). Ostrom (2000) pointed out that common parts in apartment buildings, as communal properties, are subjected to the same ‘tragedy of the commons’ as natural CPRs. Unfortunately, the fate of communal properties in apartment buildings has not aroused much attention (Blandy, Dupuis, & Dixon, 2010). Instead, many people have shortsightedly regarded building management as trivial on the grounds that buildings will be rebuilt soon or later (Walters & Kent, 2000). Others wrongly believe that management problems could be easily solved by proper building designs and financial support schemes (Easthope & Bandolph, 2009; Yeh & Yuen, 2011a). However, Yiu (2007) and Ho, Yau, Poon, and Liusman (2012) showed that relying on redevelopment is not a sustainable way of maintaining housing stocks. Besides, Yip (2011) pointed out that technology and financial subsidies are not enough to tackle management problems. Furthermore, he advocated studying management failures from a collective action perspective. To enhance the understanding of building management, this paper studies owners’ collective actions in apartment building management. It uses Hong Kong as an example for the following two reasons. First, as the dominant form of built structure in Hong Kong, apartment buildings vary in configuration, ranging from low-rise to high-rise, from single blocks to estate-types. Second, apartment buildings in Hong Kong are under the tenancy-in-common system, the institutional designs of which are more problematic than other co-ownership arrangements like condominiums (Li, 2005). In a nutshell, the two features make the city a fascinating laboratory where a massive examination of apartment building management practices could be conducted. The paper first outlines various collective actions in apartment building management and classifies them into categories. It then provides a method to analyze specific collective actions by empirically investigating the act of appointing a property management company (PMC). The logistic regression model is used to explore the relationship between four exogenous factors and the likelihood of appointment. Collective action in building management In the literature, CPRs are characterized by two features. The first is excludability, which means that the physical nature of a resource makes it costly or even impossible to exclude other potential users from accessing and enjoying it. The second is subtractability. It means if one uses a common resource, it will reduce the benefit that others can derive from it (Feeny, Berkes, McCay, & Acheson, 1990). Due to the distinctive features of a CPR, the users have to coordinate their collective actions in a timely and wise manner to manage it. Here, a collective action refers to an activity whose accomplishment requires more than one person’s efforts (Sandler, 1992). Such an action usually aims to further the joint interests of all participants (Scott & Marshall, 2005). Collective actions in CPR management take on various forms, ranging from one-shot activities (e.g. establishing a users’ organization) to timedependent ones (e.g. monitoring the implementation of rules). As mentioned before, the common parts of apartment buildings belong in the category of man-made CPRs. Their non-excludability is manifested in both trespassers’ exclusion and owners’ free ride

11

monitoring. Their subtractability emerges when one occupies a common part and directly diminishes others’ opportunities to use the same part. Generally, CPR users face two types of collective action, namely resource appropriations and maintenance provisions (Ostrom, 1990). The former concerns the ways of regulating resource use, while the latter considers the means of restoring and maintaining the resource. Resource appropriation In the set of resource appropriation, collective actions can be roughly divided into making decisions on appropriation rules and enforcing those rules. Rules are considered at three levels (Ostrom, 1990): operational, collective, and constitutional. Operational rules are at the lowest level and constitutional rules the highest. Each rule level has its own governing scope and inherits its authority from rules at a higher level. In building management, operational rules deal with day-to-day management practices (e.g. refuse collection); collective rules determine how operation rules should be designed and enforced; and constitutional rules refer to the property ownership system (Walters, 2002). A typical set of rules at the constitutional level concern land leases. Each building is erected on a plot of land that comes with a unique land lease. The land lease details the physical characteristics of the plot of land, the purpose of its use, and use duration. By purchasing unit(s) of a building that is erected on the plot, one becomes a co-owner of the land as well as of the building. His/her behavior regarding the use of the land and the building is governed by the land lease. For instance, owners are not allowed to use the land for commercial purposes if the land is for residential use only. Correspondingly, the individual units of a building can only be used for self-occupancy or be rented out rather than for business. An important set of rules at the collective level is the Building Management Ordinance. The Ordinance not only prescribes the procedures of establishing an owners’ corporation (OC), but also guides the OCs’ operations. For instance, according to the Building Management Ordinance, owners can form an OC that represents them in dealing with all management affairs related to the common parts of their building. The financial account of the OC should be inspected by an accountant annually; a general owners’ meeting should be convened by the OC at an interval of not less than fifteen months. Another important set of rules is the Deed of Mutual Covenant (DMC). A DMC is a private contract signed by the developer, the first purchaser, and the appointed manager (if any), but binds all subsequent buyers. Each DMC is designed specifically and attached to a particular building. It specifies the rights and responsibilities of individual owners by documenting the allocation of undivided shares (constitutional rules). It requires building owners to establish an owners’ committee to discharge management responsibilities (collective rules). It has clauses that forbid owners from altering their buildings (operational rules). DMCs are, therefore, a blend of constitutional, collective, and operational rules. The revision of constitutional rules usually involves the government. For instance, the government is responsible for the modification of the Building Management Ordinance, while revisions to a land lease are first applied by the leaseholders and then processed by the government’s Lands Department. Lease revisions usually take place when the leaseholders want to carry out activities that do not comply with their lease conditions. If the lease modification application is approved, the leaseholders will pay a certain premium for it. The modified lease related to the new use(s) of a building will then take effect. Also, changes in the collective rules are allowed, although they are difficult to make. Take DMCs, for example. A DMC is a private contract that cannot be unilaterally modified without the consent of all parties concerned.

12

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17

In practice, the intention to amend a DMC usually comes from those parties who are not satisfied with one or more of its clauses. However, those who benefit from the status quo would not want to change it. In addition, it is hard to reach a consensus in a residential building with a large number of owners. Therefore, modifications of a DMC are rare in building management. Compared to constitutional and collective rules, the modification of operational rules is more frequent. Since operational rules govern reoccurring management practices (like the drafting of an annual budget plan), they are revised from time to time in order to meet the residents’ requirements and adapt to a building’s changing conditions. Compared to drafting and passing rules, the collective action of enforcing them demands the constant participation of individual owners. Although punishments for breaching the rules are implemented or supported by government authorities and the courts, they require individual owners’ involvement. Specifically speaking, first of all, owners must comply with the prescribed rules. Second, owners have to cooperate to enforce all the rules. They can establish an OC, which can represent them legally to enforce the rules, or they can appoint a PMC to implement the rules on their behalf. Alternatively they can individually lodge complaints to government departments, the OC, or the PMC (if any) in person. In addition, they can even spread the news of non-compliance among their neighbors in order to punish violators. In spite of the availability of these enforcement methods, to what extent owners are willing to assist in enforcing the rules remains questionable. Maintenance provisions During the occupancy and operational stages, a building’s condition deteriorates because of wear and tear. As man-made CPRs, the common parts of a building do not have self-regeneration abilities like natural CPRs (e.g. forests). Continuous efforts are required to maintain their conditions at certain levels. Thus, a collective maintenance provision is of paramount importance to buildings. In practice, building maintenance is usually outsourced (Hui, 2005; Lai, Yik, & Jones, 2006). Maintenance requires resources (e.g. manpower, time, and skills), which most individual owners lack. Besides, management responsibilities are shared among owners, which means that individual owners are not willing to shoulder the whole burden. Therefore, maintenance provisions involve making maintenance decisions and monitoring a third party’s maintenance performance (Fig. 1). The former considers the following issues:

1) To what extent should maintenance works be carried out? 2) How should maintenance contractors be selected? 3) How should maintenance charges be collected from owners? The latter focuses on things such as cooperating with contractors, checking contractors’ workmanship, and supervising their work progress. Framework for analyzing collective action and its application As a group activity, a collective action is not always successful. As pointed out by Mancur Olson (1965) in his seminal book, The Logic of collective action, rational, self-interested individuals will not automatically further their common interests except under limited conditions. The term, ‘collective action problem’, is used to describe a phenomenon in which individuals have difficulties achieving their perceived common interests (Hovi & Foss, 1995). In building management, collective action is not without problems. Owners may be indifferent about participating in meetings on operational rules design and maintenance decisions (Yau, 2011b). During economic recessions, owners may tend to cut maintenance costs (Lai & Yik, 2004). Constrained by their knowledge of building maintenance, owners may have difficulty monitoring service providers’ performance effectively (Angwa & Olubodun, 2003). Compared to identifying collective action problems, the solutions are much more important. In the literature on CPR management, much has been written on the conditions under which successful collective actions were achieved (Agrawal & Goyal, 2001; Baland & Platteau, 2000; Ostrom, 1990; Poteete & Ostrom, 2004b, 2008; Wade, 1987). A comprehensive review conducted by Agrawal (2003) summarized 35 factors related to CPR management. A review of the studies on building management revealed a similar story. Some studies indicated that management regimes are important for solving collective action problems (Blomé, 2010; Ho et al., 2006; Walters & Kent, 2000); others focused on the impact of property rights’ delineation on building management (Blandy, Dixon, & Dupuis, 2006; Christudason, 2002, 2008b; Li, 2005; Tracht, 2000). Some pointed out that the involvement of a PMC is the key to coordinating collective actions (Christudason, 2008a; Hui, 2005; Yip, Chang, & Hung, 2007; Yiu, Wong, & Yau, 2006); others recommended social sanctions and norms to facilitate action (Bengtsson, 1998, 2001; McKee, 2008; Yau, 2010c). Some empirically showed the number of users as a determinant of a group’s

Fig. 1. A framework of the collective actions in building management.

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17

collective action prospects (Hung & Chang, 2002; Lai & Chan, 2004; Yip et al., 2007); others indicated that individual participation is of paramount importance to the success of a collective action (Simmons & Birchall, 2007; Yau, 2010a, 2011a, 2011b). On one hand, the diverse results showed the research approach to the problems from different perspectives. On the other hand, they created difficulties in evidence comparison and theory advancement. In order to synthesize collective action studies and establish a platform for research discussion and practical implementation, a framework named institutional analysis and development (IAD) was constructed. The IAD was first proposed by Oakerson (1986) and was further developed afterward (Ostrom, 2007; Poteete, Janssen, & Ostrom, 2010). The IAD model (Fig. 2) first identifies factors that may have an impact on individuals’ participatory behavior in a particular collective action; it then analyze the impacts by considering how the factors influence individuals’ own available choices and their interactions in the collective action (Tang, 1992). The IAD model was adopted by Walters and Kent (2000) to discuss building management institutions. However, they did not test the model empirically. This study chose a specific collective action named PMC appointment to illustrate the IAD. The reasons for this selection are manifold. The most important one is that PMCs play a foremost role in building management. As mentioned earlier, owners usually outsource their management affairs to third parties. A PMC is a third party with the knowledge and skills to provide building management services. Some PMCs directly provide operational services such as cleaning, security, administration, and maintenance (Cheng, 1998); others act as facilitators in coordinating other service providers. As a third party, a PMC has the advantage of handling conflicts between owners (Chen & Webster, 2005; Yiu et al., 2006). More importantly, it provides expertise in governing the use of a building’s common parts, especially in tackling the proliferation of unauthorized building works in these areas (Lai & Ho, 2001). Its overall efforts tend to help buildings maintain good health and safety conditions (Yau, Ho, & Chau, 2008). As the appointment of a PMC is one of the most important collective actions for property owners, it is worth examining why some buildings appoint one, while others do not.

Fig. 2. An adapted IAD framework from Tang’s (1992) model.

13

Resource features-building characteristics Building condition is one factor that could influence owners’ appointment decisions. On one hand, as pointed out by Baldwin (1994), well-maintained buildings tend to be associated with professional PMCs. On the other hand, a PMC may also be appointed for poorly-maintained buildings so as to assist their owners in coordinating their remedial works. Apart from building condition, building location is also relevant. Because of location effects, buildings in urban areas may command higher rents and selling prices than those in non-urban areas. With economic benefits in mind, building owners in urban areas may be more willing to maintain their buildings. Therefore, they are more likely to appoint a PMC. The scale of a building also matters. For smaller buildings, their owners may choose to outsource parts of their management tasks, such as cleaning and security, while larger buildings tend to employ a PMC to coordinate a whole range of tasks. Besides, larger estates have the advantage of being able to secure management services at lower prices due to discounts from an economy of scale (Khublall, 1995; Wood, 2003). It is therefore they are more likely to appoint a PMC. Owners’ characteristics-group size The number of participants (hereinafter referred to as group size) is also relevant to the success of a collective action, although its effects are still debated (Bandiera, Barankay, & Rasul, 2005; Poteete & Ostrom, 2004a). One argument is that the larger a group’s size, the less likely it will reach an agreement. The reasons for such a negative effect are at least threefold. First, participants tend to reserve their efforts due to a mentality that their contribution makes no difference to the final outcome (Olson, 1965). Second, as a group’s size increases, the frequency of its participants’ communication declines, which hampers the development of trust between members and trust, is an important ingredient in cooperation (Poteete & Ostrom, 2004a). Third, with the increase in group size, the transaction costs of monitoring a collective action increase considerably (Walters, 2002). The argument over the negative group size effect seems to intuitively match real life situations. Lai and Chan (2004) empirically found that it was more difficult to establish an owners’ organization in a larger building; Chen and Webster (2005) found that the rate of owner’s organizations’ registration was lower in larger residential developments in Taipei. Another argument is that there is no universal impact of size on collective action. Apart from the aforementioned negative impact of group size, positive effects also exist. An increase in group size may bring with it additional resources (e.g. financial endowment) to support a collective action. Generally speaking, when the average cost of providing a collective good increases proportionately with an increase in group size, the group’s size has a negative effect on the collective action or lack thereof. When the average costs of the good provision monotonously fall with the group’s size increase, group size has a positive effect on the collective action. For cases different from the above two, the final effect of group size is hard to predict (Hardin, 1982; Kollock, 1998; Oliver & Marwell, 1988; Oliver, Marwell, & Teixeira, 1985; Ostrom, 2003). Particularly, there is also no consensus on the sign of the size effect when a third party is appointed. Hung and Chang’s (2002) survey data from Taipei showed that buildings with a large number of owners tend to select a PMC. Yip et al. (2007) repeated the test with residential building data from Taipei and Hong Kong and found similar results. However, Agrawal and Goyal (2001) found an inverted U-shape between group size and third party appointments using data from rural area in Kumaon.

14

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17

Institutions Institutions are rules that guide participants’ behavior. Rules governing building management can be broken down to the constitutional, collective, and operational levels. Specifically speaking, there is no constitutional rule governing PMC appointments. Although the Secretary for Home Affairs has the power to order that a manager be appointed for a building, this power has seldom been invoked. Since appointing a PMC is an action related to day-to-day practices, it is not regulated by operational rules. Thus, only rules at the collective level can influence appointments. Usually, DMCs have clauses governing the PMC’s appointment. In the past, the drafting of a DMC was dominated by the developer. A subsidiary PMC was usually appointed for an extended duration, and the appointment was written into the DMC. Nowadays, this situation has changed since the implementation of the Building Management Ordinance and the issue of guidance in drafting DMCs. A new DMC must limit a PMC’s employment to two years and its contract renewal is up to the owners. Thus, the appointment of a PMC is not a mandatory requirement in Hong Kong. One may assume that institutions have a negligible impact on the appointment of a PMC. Interactions e owners’ corporation According to Williamson (1975, 1985), transactions take place in either the market or organizations (hierarchy), depending on where the costs are lower. Referring to Williamson, Walters (2002) compared the transaction costs of carrying out a collective action using market bargaining and through the organizational method. Market bargaining refers to participants reaching an agreement by multilateral transaction, while the organizational method refers to setting up a sort of hierarchy or organization that is responsible for coordinating stakeholders. In Fig. 3, Walters (2002) outlined the trends of transaction costs in market bargaining (represented by letter M) and organizational hierarchy (represented by letter H), respectively. But he did not consider the transaction costs of establishing an organization. Organization establishment is another collective action whose success depends on market bargaining. Put differently, the assumption about the fixed cost of hierarchy remains arguable. However, the idea of a transaction costs comparison could be used in our case, in which two buildings have the same number of owners. Suppose Building A has already established an organizational hierarchy, while Building B has not. According to Walters (2002), the transaction cost of appointing a PMC for Building A is n*(unit transaction costs), while that for

Fig. 3. Costs of the market bargaining and organizational hierarchy systems (source: Walters, 2002).

Building B is n*(n  1)*(unit transaction costs)/2. The cost of Building B’s appointment is less than that of Building A only when n is not more than two. As n is greater than two, Building A’s transaction cost is less than that of Building B. Since an apartment building is defined as a built structure governed by a co-ownership arrangement, buildings with established organizations are more likely to appoint a PMC, ceteris paribus. Empirical investigation Measurement From the literature, five exogenous variables that could be related to the appointment of a PMC were identified. They were: 1) 2) 3) 4) 5)

building condition; building location; building scale; the size of the owners’ group; and the presence of an owners’ organization.

Before empirically investigating the relationship between these exogenous variables and collective action, the variables need to be measured. A building condition is measured by its age. Since larger buildings tend to have more owners, those two are combined into one variable called SIZE in this analysis. The SIZE of a building is then measured by the number of units in that building. The sampled buildings will be dichotomized into the New Territories and the other areas (Hong Kong Island and Kowloon), according to their districts. Building location is then measured by a dummy variable whose value is 1 if the building is located in urban areas and 0 if otherwise. The interaction pattern is represented by the presence of an OC in a building, while the success of appointing a PMC is measured by the presence of a PMC in a building. Data descriptions A private building list that contained all private buildings (around 39,564) in Hong Kong was obtained from the Home Affairs Department in 2010. Using the list as a sample frame, 3402 single block buildings across 18 districts in Hong Kong were sampled. Deleting buildings with missing values and buildings with only one unit left us with about 2989 apartment buildings. Information on building age, the number of units, their locations, the presence of an OC, and the presence of a PMC was collected. Fig. 4 depicts the relationship between building age and PMC appointment. It shows that as a building ages, r1 decreases, whereas r1 ¼ (the number of buildings with a PMC)/(the number of buildings without a PMC). Intuitively speaking, a building’s age may have a negative impact on the likelihood of its owner(s) appointing a PMC. Table 1 shows the

Fig. 4. Comparison between buildings with and without a PMC in each age group.

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17 Table 1 Buildings with a PMC and buildings without in each unit group.

15

Table 3 Cross-tabulation table of PMC appointments by owners’ corporation.

SIZE

With PMC

Without PMC

Ratio (r2a)

Owners’ corporation

units > 100 80 < units  60 < units  40 < units  20 < units  units  20

174 79 94 173 277 358

96 26 52 116 267 1273

1.81 3.03 1.81 1.49 1.03 .28

Presence

Absence

984 73.9% 348 26.1% 1332 100.0%

847 51.2% 808 48.8% 1655 100.0%

a

100 80 60 40

PMC

Presence Absence

Total

r2 ¼ (no. of buildings with a PMC)/(no. of buildings without a PMC).

relationship between building size and PMC appointment. It indicates that a non-linear relationship between ‘SIZE’ and the appointment of a PMC may exist. Table 2 shows that buildings located in Hong Kong’s other areas were more likely (44.5%) to appoint a PMC than those in the New Territories (31.7%). The results of the Chi-square test (the Pearson Chi-Square value was 50.976, the freedom of degree was 1, and the p-value was <.001) further showed that the percentage difference was statistically significant. Table 3 indicates that buildings with an OC were more likely (48.8%) to appoint a PMC than those without (26.1%). The results of another Chi-square test carried out indicated that the difference was statistically significant (the Pearson Chi-Square value was 160.242, the freedom of degree was 1, and the p-value was <.001). Methodology Based on the literature review and the above analysis, a PMC appointment could be a function (F) of building age, building location, SIZE, and owners’ organization (Eq. (1)). Particularly, since a PMC appointment is measured by the presence of a PMC, which is a binary variable, a logistic regression is used to test the relationship between the identified variables and the appointment of a PMC.

logitðPMCi Þ ¼ a*AGEi þ b*LOCATIONi þ g*SIZEi þ d*ORGANIZATIONi þ ε

(1)

where PMCi is a dummy variable that equals 1 if building i has a PMC and 0 if otherwise; AGEi equals (building i’s age)/10; LOCATIONi is a dummy variable that equals 1 if building i is in an urban area and 0 if otherwise; SIZEi is the Z-scores of building i’s units number; ORGANIZATIONi is a dummy variable that equals 1 if the building has an organization and 0 if otherwise. ε denotes the unknown parameters that influence the appointment choices. Results and discussion Using the logistic regression provided by SPSS 18, the relationship between the identified variables and the event of appointing a PMC was tested. The results from the Omnibus test showed that there was a statistically significant relationship between the entire

Table 2 Cross-tabulation table of PMC appointments by building location. Districts

PMC

Presence Absence

Total

Count Percentage Count Percentage Count Percentage

Count Percentage Count Percentage Count Percentage

Total

1831 61.3% 1156 38.7% 2987 100.0%

set of independent variables on one hand and the dependent variable on the other (Chi-square 693.441, df 4, p-value .000). Table 4 reports the estimates, which indicate the relationship between the PMC and the four variables. The results further indicate that a unit change of building age (ten years) leads to a .546 odds decrease. Since building age is assumed to be a proxy of building condition, the results show that buildings in poorer condition are less likely to have a PMC. This matches Baldwin’s (1994) statement that buildings in good condition tend to be managed well. It may imply that the existence of a PMC is conducive to a building’s condition, although the causal relationship between these two factors needs further investigation. As for location, a positive relationship between building location and PMC appointment was found (the odds ratio was 1.755 > 1). This shows that buildings in the New Territories were less likely to appoint a PMC than those on Hong Kong Island and in Kowloon. One reason for this might be that buildings in the New Territories are farther away from Hong Kong’s central business districts (CBDs). Buildings near the CBD usually command a higher price premium than those on the periphery, so the former are more likely to appoint a PMC. The results are similar to those of Lai and Chan (2004), who tested the collective action of forming an OC and building location. It can be inferred that building location is one of the most influential factors in building management. As the old saying goes, things about buildings are all about location! The odds ratio for ‘SIZE’ is 1.755. This conveys at least two messages. One, there is a positive relationship between ‘SIZE’ and the appointment of a PMC. Two, the relationship is non-linear, as a logistic regression was used in this study. As discussed before, the factor ‘SIZE’ has both a positive and negative impact on the appointment of a PMC. With an increase in the number of units, an economy of scale would be achieved, while the transaction costs of decision making and punishing free riders would increase. The results of this study indicate that the positive effects of unit number on the appointment of a PMC outweigh its negative effects. This contradicts Olson (1965), who claimed that the success of collective action in a larger group is never an easy task, as rational individuals who are motivated by their own self-interests tend to free-ride on collective goods, thereby ensuring that collective goods will be provided at suboptimal levels. The results of this study could be

Table 4 Logistic regression results. Total

New territories

Other areas

923 68.3% 428 31.7% 1351 100.0%

908 55.5% 727 44.5% 1635 100.0%

Step1a 1831 61.3% 1155 38.7% 2986 100.0%

SIZE AGE ORGANIZATION(1) LOCATION(1) CONSTANT

B

S.E.

Wald

df

Sig

Exp(B)

.253 .604 .778 .563 .956

.054 .034 .090 .086 .144

21.649 320.955 74.966 42.816 44.283

1 1 1 1 1

.000 .000 .000 .000 .000

1.288 .546 2.177 1.755 2.601

a Variables are on the logit scale; Exp(B) represents the odds ratios for the appointment.

16

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17

regarded as a counterexample of Olson’s argument. They show that collective action by larger groups can succeed. Table 4 also showed that owners’ organizations increase the odds of appointing a PMC by a factor of 2.177. It showed that the establishment of an owners’ organization has had a positive impact on PMC appointments. More generally, one could say that an owners’ organization is conducive to the owners’ decision making. Because of the co-ownership arrangement, building management has to involve a group of owners. However, it is difficult, if not impossible, to obtain the consent of all owners on every single management matter. Still, the existence of an owner’s organization tends to simplify the decision making process. In practice, management committees of owners’ organizations could research the property management industry and invite eligible PMC candidates to vie for appointments. They could represent owners as a whole in dealing with the PMC during the procurement process. They may organize general owners’ meetings, during which appointment decisions could be made using the majority vote system. In a nutshell, the involvement of an owners’ organization is conducive to the reduction of transaction costs in researching information, negotiating with PMC candidates, and organizing owners. Conclusion Global warming, environmental degradation, and resource depletion have attracted more public attention to the phenomenon of the “tragedy of the commons”. For decades, numerous studies have been conducted on natural CPR management, while relatively little attention has been paid to man-made CPRs, especially the common parts of apartment buildings. Similar to users of natural CPRs, building owners also face collective action problems. They have a common interest in fostering a pleasant and comfortable living environment, but such an interest is often insufficient to motivate them to take part in the management of their buildings. Free riders dominate in the mismanagement of a building, leading to its disrepair. Owners seek to maximize the use of the common parts of their buildings, but often minimize their efforts in discharging management responsibility. Such irrational and shortsighted behavior accelerates building deterioration and creates a loseelose situation for all. Negligence in building management further results in a lack of housing stock upkeep, social network preservation, and construction waste reduction. Thus, further studies on collective action in building management are of paramount importance and urgently needed. Referring to conventional CPR management, this paper categorized collective action in building management into four groups: 1) rules design, 2) rules enforcement, 3) maintenance decisions, and 4) the monitoring of an agent’s performance. For each collective action, a careful description was given, which could help researchers operationalize the collective action concept. Furthermore, the IAD framework was proposed to analyze collective actions and a demonstration was given by studying a specific collective action (the PMC appointment). Based on information from a sample of 2989 single block apartment buildings in Hong Kong, we performed logistic regression analysis to investigate the relationship between the likelihood of a PMC appointment and four exogenous factors, namely building age, building location, group size, and owners’ organizations. We found that building age had a negative impact on the likelihood of a PMC appointment. Compared to buildings in the New Territories, those on Hong Kong Island and in Kowloon were more likely to appoint a PMC. Moreover, the existence of an owners’ organization for an apartment building increased the possibility of that building appointing a PMC. The results suggested that the government

should spare no effort to promote owners’ organizations, provide training courses for their chairmen and management committee members, strengthen the relationship between residents by promoting community activities, and educate owners on how to manage their buildings. This paper also showed that the relationship between group size and collective action is non-linear. On one hand, it means that collective action can still work in large owners’ groups. On the other hand, it conveys a message that the difficulties of executing collective action still exist in such groups. Government should realize these difficulties and assist owners in their hiring of management services. In Taiwan where large-scale apartment buildings are also very common, property managers are active in organizing owners in establishing their organizations and appointing PMCs (Chen & Webster, 2005). They first divide the group into several smaller groups. Separately, they then contact those small groups and organize discussions. Acting as an organizer, they help the owners reach final agreements about the appointment. Hopefully property managers in Hong Kong can adopt this practice and facilitate owners to manage their buildings, so as to foster a more comfortable living environment. The main limitation of this paper is that it focused on apartment buildings in Hong Kong. In order to make full use of the generated results, proper adaptations are needed when discussing similar situations in other places (e.g. Australia and Singapore) where apartments are popular and under different jurisdictional systems. Certainly, research on one type of collective action is not sufficient to generate enough knowledge of building management. More research should be carried out in this field. The results generated may contribute not only to the building management field, but also to the theory pool of collective action.

References Agrawal, A. (2003). Sustainable governance of common-pool resources: context, methods, and politics. Annual Review of Anthropology, 32, 243e262. Agrawal, A., & Goyal, S. (2001). Group size and collective action: third party monitoring in common-pool resources. Comparative Political Studies, 34(1), 63e 93. Angwa, F. K., & Olubodun, F. (2003). A factor approach to analysis of home maintenance outcomes and attributes of management successes in the owneroccupied sector. Structural Survey, 21(4), 158e172. Baland, J. M., & Platteau, J. P. (2000). Halting degradation of natural resources: Is there a role for rural communities. Oxford: Oxford University Press. Baldwin, G. (1994). Property management in Hong Kong. Property Management, 12(4), 18e23. Bandiera, O., Barankay, I., & Rasul, I. (2005). Cooperation in collective action. Economics of Transition, 13(3), 473e498. Bengtsson, B. (1998). Tenant’s dilemma: on collective action in housing. Housing Studies, 13(1), 99e120. Bengtsson, B. (2001). Solving the tenants’ dilemma: collective action and norms of co-operation in housing. Housing, Theory and Society, 17(4), 175e187. Blandy, S., Dixon, J., & Dupuis, A. (2006). Theorising power relationships in multiowned residential developments: unpacking the bundle of rights. Urban Studies, 43(13), 2365e2383. Blandy, S., Dupuis, A., & Dixon, J. (2010). Multi-owned housing. England: Ashgate Publishing Limited. Blomé, G. (2010). Local housing administration models for large housing estates. Property Management, 28(5), 320e338. Chau, K. W., Leung, A. Y. T., & Yiu, C. Y. (2003). Estimating the value enhancement effects of refurbishment. Facilities, 21(1/2), 13e19. Chen, S. C. Y., & Webster, C. J. (2005). Homeowners associations collective action and costs of private governance. Housing Studies, 20(2), 205e220. Cheng, R. W. M. (1998). Property management. In T. N. T. Poon, & E. H. W. Chan (Eds.), Real estate development in Hong Kong. Hong Kong: Pacing Publishing. Christudason, A. (2002). Legislating for environmental practices within residential property management in Singapore. Property Management, 20(4), 252e263. Christudason, A. (2008a). Choice of property management system for residential strata developments in Singapore. Property Management, 26(2), 97e111. Christudason, A. (2008b). Legislation affecting common property management in Singapore. Property Management, 26(3), 207e219. Dietz, T., Ostrom, E., & Stern, P. C. (2003). The struggle to govern the commons. Science, 302, 1907e1912. Easthope, H., & Bandolph, B. (2009). Governing the compact city: the challenges of apartment living in Sydney, Australia. Housing Studies, 24(2), 243e259.

D.C.W. Ho, W. Gao / Habitat International 38 (2013) 10e17 Feeny, D., Berkes, F., McCay, B. J., & Acheson, J. M. (1990). The tragedy of the commons: twenty-two years later. Human Ecology, 18(1), 1e19. Hardin, G. (1968). The tragedy of the commons. Science, 162, 1243e1248. Hardin, R. (1982). Collective action. The United States of America: The Johns Hopkins University Press. Ho, D. C. W. (1993). Maintenance management of ageing buildings in Hong Kong. Property Management, 11(3), 240e245. Ho, D. C. W., Yau, Y., Poon, S., & Liusman, E. (2012). Achieving sustainable urban renewal in Hong Kong: strategy for dilapidation assessment of high rises. Journal of Urban Planning and Development, 138(2), 153e165. Ho, D. C. W., Yau, Y., Wong, S. K., Cheung, A. K. C., Chau, K. W., & Wong, H. F. (2006). Effects of building management regimes of private apartment buildings in Hong Kong. Property Management, 24(3), 309e321. Hovi, J., & Foss, P. (1995). The collective action problem and some of its solutions. USA: Dartmouth Publishing Company Limited. Hui, E. Y. Y. (2005). Key success factors of building management in large and dense residential estates. Facilities, 23(1/2), 47e62. Hung, T. Y., & Chang, C. O. (2002). An analysis of the management and maintenance modes of condominium in Tai Pei. Journal of City and Planning, 29(3), 421e444. Khublall, N. (1995). Strata titles. Singapore: Butterworths. Kollock, P. (1998). Social dilemmas: the anatomy of cooperation. Annual Review of Sociology, 24, 183e214. Lai, L. W. C., & Chan, P. Y. L. (2004). The formation of owners’ corporations in Hong Kong’s private housing estates: a probit evaluation of Mancur Olson’s group theory. Property Management, 22(1), 55e68. Lai, L. W. C., & Ho, D. C. W. (2001). Unauthorized structures in a high-rise highdensity environment the case of Hong Kong. Property Management, 19(2), 112e113. Lai, J. H. K., & Yik, F. W. H. (2004). Law and building services maintenance in Hong Kong. The Hong Kong Institution of Engineers, 11(1), 7e14. Lai, J. H. K., & Yik, F. W. H. (2011). An analytical method to evaluate facility management services for residential buildings. Building and Environment, 46(1), 165e175. Lai, J. H. K., Yik, F. W. H., & Jones, P. (2006). Critical contractual issues of outsourced operation and maintenance service for commercial buildings. International Journal of Service Industry Management, 17(4), 320e343. Leung, H. F. (2003). The effect of personal injuries claims as a result of mismanagement of multi-storey buildings on property investment in Hong Kong. Facilities, 21(1/2), 28e37. Li, L. H. (2005). Managing community in Hong Kong: the political economy perspective. Property Management, 23(2), 122e136. McKee, K. (2008). The ‘responsible’ tenant and the problem of apathy. Social Policy and Society, 8(01), 25e36. Oakerson, R. J. (1986). A model for the analysis of common property resource management. Washington DC: National Academy Press. Oliver, P. E., & Marwell, G. (1988). The paradox of group-size in collective action: a theory of the critical mass II. American Sociological Review, 53(1), 1e8. Oliver, P., Marwell, G., & Teixeira, R. (1985). A theory of the critical mass I: interdependence, group heterogeneity, and the production of collective action. The American Journal of Sociology, 91(3), 522e556. Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Cambridge, MA: Harvard University Press. Ostrom, E. (1990). Governing the commons: The evolution of institutions for collective action. USA: Cambridge University Press. Ostrom, E. (2000). Private and common-property rights. Cheltenham, UK: Edward Elgar. Ostrom, E. (2003). How types of goods and property rights jointly affect collective action. Journal of Theoretical Politics, 15(3), 239e270. Ostrom, E. (2007). A diagnostic approach for going beyond panaceas. Proceedings of the National Academy of Sciences of the United States of America, 104(39), 15181e15187.

17

Poteete, A. R., Janssen, M. A., & Ostrom, E. (2010). Working together: Collective action, the commons, and multiple methods in practice. Princeton and Oxford: Princeton University Press. Poteete, A., & Ostrom, E. (2004a). Heterogeneity, group size and collective action: the role of institutions in forest management. Development and Change, 35(3), 435e461. Poteete, A. R., & Ostrom, E. (2004b). In pursuit of comparable concepts and data about collective action. Agricultural Systems, 82(3), 215e232. Poteete, A. R., & Ostrom, E. (2008). Fifteen years of empirical research on collective action in natural resource management: struggling to build large-N databases based on qualitative research. World Development, 36(1), 176e195. Sandler, T. (1992). Collective action: Theory and applications. Ann Arbor: University of Michigan Press. Scott, J., & Marshall, G. (2005). A dictionary of sociology. Oxford, New York: Oxford University Press. Simmons, R., & Birchall, J. (2007). Tenant participation and social housing in the UK: applying a theoretical model. Housing Studies, 22(4), 573e595. Stewart, J. (2003). Encouraging home-owners to maintain their homes: initiatives in the Bellenden renewal area, Peckham. Journal of Environmental Health Research, 2(1), 10e21. Tang, S. Y. (1992). Institutions and collective action. The United States of America: ICS Press. Tracht M.E. (Ed.), (2000). Co-ownership and condominium. Cheltenham: Edward Elgar. Wade, R. (1987). The management of common property resources: collective action as an alternative to privatisation or state regulation. Cambridge Journal of Economics, 11(2), 95e106. Walters, M. (2002). Transaction costs of collective action in Hong Kong high rise real estate. International Journal of Social Economics, 29(4), 299e341. Walters, M., & Kent, P. (2000). Institutional economics and property strata title e a survey and case study. Journal of Property Research, 17(3), 221e240. Williamson, O. E. (1975). Markets and hierarchies. New York: Free Press. Williamson, O. E. (1985). The economic institutions of capitalism. New York: Free Press. Wood, B. (2003). Building care. Oxford: Blackwell Science. Yau, Y. (2010a). Domestic waste recycling, collective action and economic incentive: the case in Hong Kong. Waste Management, 30(12), 2440e2447. Yau, Y. (2010b). Engaging homeowners in building care in Hong Kong: drivers and barriers. Journal of Building Appraisal, 6(1), 35e48. Yau, Y. (2010c). Sense of community and homeowner participation in housing management: a study of Hong Kong. Urbani Izziv, 21(1), 126e135. Yau, Y. (2011a). Collectivism and activism in housing management in Hong Kong. Habitat International, 35(2), 327e334. Yau, Y. (2011b). Homeowners’ participation in management of multi-storey residential buildings: the Hong Kong case. Property Management, 29(4), 345e356. Yau, Y., Ho, D. C. W., & Chau, K. W. (2008). Determinants of the safety performance of private multi-storey residential buildings in Hong Kong. Social Indicators Research, 89(3), 501e521. Yeh, A. G. O., & Yuen, B. (2011a). Introduction: High-rise living in Asian cities. London: Springer. Yeh, A. G. O., & Yuen, B. (2011b). Tall building living in high density cities: A comparison of Hong Kong and Singapore. London: Springer. Yip, N. M. (2011). Management rights in multi-owned properties in Hong Kong. In S. Blandy, A. Dupuis, & J. Dixon (Eds.), Multi-owned housing. England: Ashgate. Yip, N. M., Chang, C. O., & Hung, T. Y. (2007). Modes of condominium management a principal-agent perspective. Facilities, 25(5/6), 215e226. Yiu, C. Y. (2007). Building depreciation and sustainable development. Journal of Building Appraisal, 3(2), 97e103. Yiu, C. Y., Wong, S. K., & Yau, Y. (2006). Property management as property rights governance: exclusion and internal conflict resolution. Property Management, 24(2), 87e97.