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.
The ban on second homes in Cornwall has damaged the local economy and pushed housing further out of reach of local people because:
- 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.
- 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.
- New build homes did decline in price a little but remain broadly out of reach for local people as well.
- 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:
- 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.)
- 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.
- 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.
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