Has the ban on second homes backfired?

see also reader comments at bottom of article

If you picked up this weeks The Cornishman you may have seen the article on page 2 on second homes and its reference to the Penzance Citizens Panel. The article is entitled ‘Second homes ban has backfired, says study’.

The article is the result of an exchange of emails between myself (Gavin Barker) and  Christian Hilbert, a professor of economic geography at London School of Economics. My aim was to gather together information that would be useful to the citizens panel which is looking at high housing costs and a low wage economy as a contributory factor in homelessness. 

His detailed response was with regard to an earlier article in The Times in which he asserted that the ban on second homes in Cornwall has backfired.

You can see the full detailed exchange of emails by clicking here and his accompanying documents here  (easy read) and here (more technical)  but I summarise what he says as follows: 

The  ban on second homes in Cornwall has damaged the local economy and pushed housing further out of reach of local people because:

  1. Banning ownership of a new-build homes pushed summer dwellers (second home owners) to compete with local residents for existing homes. That pushed up house prices of existing homes  further beyond the reach for local residents.
  2. Banning new build homes also meant less ‘affordable housing’ was built since private property developers are obliged to cross subsidise ‘affordable housing’ when they want to build more luxurious housing.
  3. New build homes did decline in price a little but remain broadly out of reach for local people as well.
  4. Construction and tourism suffered: less houses being built which means less local jobs. Tourism also suffered as prospective second home owners looked elsewhere  

While Professor Hilbert’s research looked at the ban on the construction of new second homes in Switzerland, his detailed response to me compared the Swiss example with St Ives. The extracts from our email exchange are below. He points out that:

In the UK ….. the government enforces developers to cross-subsidise ‘affordable housing’ when they want to build more luxurious housing (Section 106 agreement). And because demand for more luxurious housing (mainly second homes for wealthy investors) collapsed, developers were also less willing to provide more ‘affordable housing’.

And he goes on: 

In St. Ives, ……..  demand switched from new build to existing homes (and possibly to other nearby towns that did not introduce a ban). This led to an increase in the price of existing homes….a ban like the one in St Ives has the downsides: higher prices for existing homes + less new (affordable) housing for the local population + an adverse effect on the local economy. In addition, I would expect that over time, second home investors may ‘buy out’ local residents, so the share of local residents will further decrease in the long-run

So what solution did Professor Hilbert advocate?

He advocates  a local annual tax on the current value of second homes (i.e., homes that do not have a year-round resident). Compared to a ban on the construction of second homes, he claims that such a tax has some important advantages and he sets three:

  1.       It generates revenue for the local authority that may be used to provide or improve local public services for the existing residents (think of local schools, libraries, social services, roads etc.)
  2.       Because it is a tax that has to be paid by 2nd home investors each year, it discourages buying property for investment purposes. It makes the investment less attractive. This will help with the affordability of existing homes.
  3.       Related to 2. It incentivises owners to actually occupy the property and not leave it empty. So, there should be fewer empty homes. Fewer ‘ghost towns’ out of season.

By contrast a ban does not generate any revenue, it merely shifts demand from new build to existing homes (thereby reducing the share of permanent residents further) and making existing housing stock even less affordable. It does not discourage buying property for pure investment motives and it does not reduce mostly vacant homes, rather in the long-run a ban can be expected to increase the share of such homes.

However The Cornishman article quotes cllr Andrew Mitchell, the cabinet member for housing at Cornwall Council as saying that “we [Cornwall Council] are not legally allowed to do that[impose a tax]”. In other words legislation would have to be passed by Parliament to devolve such tax decisions down to local government level. This is something that could be put to Derek Thomas MP when he meets with the citizens panel.

Below, I put the House Price to earnings ratio. Someone living in the St Ives parliamentary constituency, including Penzance, has to pay over ten times the average annual salary to buy a home.

The bar chart compares the median house price with the median salary for full time employees in each of the parliamentary constituencies. These calculations are based on paid employees only. Self-employed workers are not included[1].

For England, the ratio is now at its highest recorded level: median house prices are 7.9 times higher than median earnings. In 2002, it was 5.1[2]

hsePrice_earningsRatio3

[1] What is affordable housing? Briefing paper, House of Commons website

[2] —–ditto——

5 Comments

  1. Professor Hilbert’s arguments and explanations have a logic to them – particularly the comparison with the Swiss model. However, I do wonder if he has been studying ONLY St Ives. If so I would think that the sample size (both geographically and time period) are simply too small to draw such definite conclusions so soon. I don’t know the ins and outs of imposing an annual tax on second homes but I would hope that Councillor Mitchell does and I’m sure that he is correct in saying that enabling legislation from Westminster would be required… and that might be a long time coming! In the meantime the Neighbourhood Plan route still seems to me to be the best short term method in second home hotspots like St Ives and Mousehole.

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    1. Hi Jonathan – I’ve responded to a similar comment made by Stuart Roden looking at the simpler version of his two reports, it seems he is looking Cornwall wide and not just St Ives. However his comparison with ski chalets as second homes confuses things. Maybe incorporating an impact assessment as part of NDP’s is the best way forward? we would then know over time whether the ban was working or not. Simpler version of his report is here and I have now included links to both reports into the main blog article https://drive.google.com/file/d/0B9eKGsxWbBnOMFd6V0ZvYTlNdkJEZzFJaWs5S3hVTl9DdktR/view?usp=sharing

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  2. Comment by Stuart Roden: I saw your face book post about the claims that restricting the sale of new homes as second/holiday homes had been counterproductive and actually increased the price of existing homes making them even more out of the reach of average wage earners and at the same time reduced the numbers of new “affordable” homes resulting from a drop in demand for open market properties.
    I wonder if there is sufficient detailed information about house prices in the St Ives neighbourhood development plan area?I have seen that the Land registry produce Cornwall wide figures but given that most parts of Cornwall don’t have any restrictions on second home purchase.
    Are the claims based on Cornwall wide figures or are they specifically based on St Ives figures?
    I also note that the author accepts that the Swiss comparison may not be comparing like with like as they are effectively wooden ski lodge type properties in Switzerland as opposed to permanent structures in Cornwall.
    It would be very useful to know the actual impact of these provisions within NDPs.
    Obliviously the private sector and developers aren’t keen as it impacts on profits and restricts “the market”

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    1. Hi Stuart – looking at the simpler version of his two reports, it seems he is looking Cornwall wide and not just St Ives. However his comparison with ski chalets as second homes confuses things. I think your point about doing an impact assessment as part of NDP’s is probably the best way forward because it would either confirm or reject his findings. The simpler version of his report is here https://drive.google.com/file/d/0B9eKGsxWbBnOMFd6V0ZvYTlNdkJEZzFJaWs5S3hVTl9DdktR/view?usp=sharing

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  3. Comment by cllr Mario Fonk via email who leans towards a local annual tax:

    I personally think that it is wrong and immoral to have so many houses being left empty or occupied for only a few weeks a year whilst at the same time some local people are homeless or living in very crammed conditions.

    Despite a declining population growth rate since the 1980s, more houses were constructed in Cornwall than needed, one reason that more houses are being built in Cornwall than the population needs, given the level of population growth, is that houses are built for second homes or to rent, these are nearly always more than the average family in Cornwall can afford. We should not be saturating Cornwall with houses that few will be able to afford to rent or buy, we should only build to satisfy the local need. That is why I consistently voted against the proposed huge number of new builds in Cornwall, unfortunately I was in the minority.

    We are very lucky that we live in one of the most beautiful areas of the UK and can understand why people from outside the area might want to spend some time here, but they must be made to contribute more to the local economy,a local annual tax should be imposed on the current value of properties that do not have all year occupation.

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