Keeping it local: the holiday towns banning second homes

With Brexit, the falling pound and punitive tax changes in the residential buy-to-let market, the UK holiday home market has never been stronger. Last year saw a 50% drop in the number of houses in Spain being bought by the British, coinciding with a 40% increase in listings of UK holiday homes, according to research by Home Protect. And Second Estates found the UK’s 165,00 holiday homes produced £2.1bn rental income in 2016, a 6.4% increase on the previous year, compared with a 1.2% drop in the buy-to-let market. But this inflationary pressure has caused problems in the UK’s coastal and tourist towns, particularly in the South West, where one-fifth of British holiday homes are located. Second homes The National Housing Federation estimates that around 10% of Cornwall’s entire housing stock – 14,000 homes – are second or holiday homes. Between 2011 and 2015 there was a shortfall of more than 2,700 homes built in Cornwall, so measures have been introduced across the county to prevent its scarce supply of new-builds getting into the hands of “up-country” second-home buyers. St Ives, where around 25% of residences are second homes, used a clause in its Neighbourhood Development Plan to ban the sale of new-build homes to those who do not intend to live in the property for the majority of the year. When this decision was ratified in the high court following a challenge by a firm of Penzance architects, several other Cornish towns also implemented their own ban.    In May this year, the parish of St Minver, which includes Rock and Polzeath, where nearly 50% of residences are second homes, and the Rame Peninsula, which encompasses popular holiday towns such as Kingsand and Seaton, adopted the new-homes-for-residents-only rule in their NDPs. Extreme measure? Across the border, South Hams District Council, which includes Dartmouth and Salcombe with 40%-plus ratios of holiday homes, declared it will support any town that wishes to establish their own bans. Elsewhere, Wirksworth in Derbyshire and Bembridge on the Isle of Wight have implemented similar restrictions, while parts of Suffolk, Norfolk, North Wales and the Lakes are all considering such measures. It is expected to be at least five years before any meaningful conclusions can are drawn as to the impact. However, it is a tactic that has been used abroad. Credit Suisse estimates that a similar ban in Switzerland, introduced in 2012, has led to a 12% reduction in house prices and a 50% drop in development in affected areas (see box below). But there is perceived to have been an immediate response in Cornwall. Miles Kevin, of holiday home specialist Chartsedge, says: “St Ives’ house prices have increased as existing stock has reduced. Second-home buyers are just looking further back into town, which is removing homes traditionally for local buyers.” Affordable stock The hope was that developers would still build in St Ives, just more affordable stock. However, Kevin says they are looking elsewhere for better margins as people seeking holiday homes will pay more than locals. Neighbouring Hayle has been an immediate beneficiary, where strong interest in the town has seen it as an emerging prime market, according to Savills. Newquay is also benefiting. Mike Oldrieve, of Vickery Holman in Truro, says the town is attractive to developers and buyers who are priced out or wary of St Ives as there is no talk of a ban being introduced. Kevin says the town has the balance right. “There has been plenty of second-home developments, particularly for the surfers’ and lifestyle market. But there has been no shortage of affordable development for permanent residents, just maybe not on the seafront.” Keeping an eye on things On the other side of the country, the NHF says 10% of the housing stock in North Norfolk – with towns such as Wells-next-the-Sea – are second homes. Local MPs and councillors have said they are monitoring the St Ives ban before deciding what measures to implement locally. Guy Gowing, of Arnold Keys in Norwich, says while there is no doubt that many new developments are aimed specifically at the second home market and the higher prices they demand, he does not feel the buying ban is the right solution. “The blanket ban is well-meaning but in reality it is difficult to impose and delivery is a real headache,” he says. And colleague Clive Hedges adds: “Holiday home buyers want a pretty flint cottage by the sea. They won’t buy traditional new-build properties.” Hedges says demand for second homes is gentrifying some of Norfolk’s previously less fashionable seaside towns such as Cromer, where prices are rising. But Gowing feels that, while there is an element of developers making hay while the sun shines on the second home market, he has not seen a rush to get in before any restrictions are imposed. Across the country, tourist towns from Aldeburgh to Zennor are keeping an eye on what happens in St Ives and while most agree that measures must be taken, there is little sentiment in the industry that the ban is the correct way forward. Kevin says: “The ban will spread throughout the country but it is an emotional response, not one grounded in practicality. You would be better off doubling the council tax and getting a financial return.” Hedges adds: “The ban just shifts the problem, not alleviates it. The only real solution is to build enough affordable houses.” What’s happening in Wales? Changes to the Housing (Wales) Act 2014 allow councils to charge a premium of up to 100% on top of existing council tax payments for second homes. Holiday home owners in Flintshire, Powys and Pembrokeshire now pay an extra 50% council tax and an extra 25% in Anglesey and Ceredigion. Gwynedd, the UK’s second most popular holiday home spot, will introduce a 50% surcharge next year. Pembrokeshire council estimates the surcharge on its 3,000 second homes could bring in revenue of around £2m per year. However, there are fears the councils could actually lose out if holiday homeowners change the status of their properties to “self-catering units”, which pay business rates, as many qualify for a small business premises exemption and thus pay no rates at all. In order to qualify for the exemption, the premises must be commercially let and occupied for at least 70 days per year. As one of the main issues with holiday homes is their inactivity when not being used by owners, it is hoped that the extra income from holidaymakers will offset losses.  Global measures LSE and University of Bern research identified a worldwide investment boom in second homes: ownership has grown by 20% in the USA and doubled to 15% in China. In France, second homes represent 9.3% of the housing stock and in Switzerland one in five households are second homes. Second-home investors are being blamed for dramatic house price increases and measures are being adopted to quell the situation: Switzerland – The Second Home Initiative bans development of second homes in towns where the proportion exceeds 20%, affecting mainly ski resorts such as Klosters with 80% second home ownership. Research by Credit Suisse found that by 2015, average house prices in relevant towns were 12.6% lower than would have been expected and development levels had dropped by 50% on 2011. France – A 20% second home property tax. Denmark – Stringent planning requirements for holiday homes. China – Strict minimum requirements on down payments; ban on households from buying more than one residence; and 20% capital gains tax on second home investments. Israel – Second home property tax. Photo:Warming images/rex/shutterstock This article was first published on 4 August 2017