Give second homes a second chance

There have been a number of schemes both proposed and enacted to try and tackle the perceived problem of 'second homes'. The ASI has written about the issue of second homes before (here).  

Since then the problem of second homes has been strongly connected to the shortage of housing in this country. Many immediately put forward the case of restricting the welfare of others instead of addressing the root of the issue - that there are not enough homes for those living in these popular tourist communities. 

The St. Ives scheme of banning the construction of second homes has some serious flaws as pointed out in these excellent articles by Christian Hilber at the LSE (here) and (here). This ban will likely result in an accelerated destruction of the communities. Firstly, it maims growth (and possibly leads to decline) in both the local tourism and construction industries, likely resulting in wage stagnation or job losses. Secondly, it results in an increased demand for existing primary and secondary homes causing locals to be priced out further. 

Other schemes proposed include Onward's proposition for raising stamp duty on second homes by 3%, ultimately raising £540 million along with other measures, which would help fund taking homes worth £500,000 or less out of SDLT altogether. While we welcome attempts to reduce SDLT, this sadly looks like a tax grab and does nothing to help individual communities dealing with unaffordable prices. Furthermore, stamp duty only affects the buyer when they buy the property and does not impact how much they make use of the property after they have bought it. 

All of this does not really address the main problem though, that locals in these villages are struggling to buy property. Councils could do more to ease planning regulations on homes built primarily for the local market, helping to deal with issues of supply. Or, if you did want to have market intervention, then councils could introduce low annual taxes on secondary homes to help subsidise building of homes for locals. 

But it would be foolish to pursue a policy that would further price locals out while also killing the local labour market at the same time.