What results when politicians tamper with property markets?

I was prompted to write this when I read about the St Ives’ property market, in Cornwall, UK.

The town attracts holiday makers, visitors and habitants, given it is an idyllic seaside town.

United Kingdom_Coastal Properties_Boat-Sea-scene

The problem for the locals, is that it has attracted nationwide interest in its property market and the blame is laid on this wave of home buyers for pushing up the property prices, to the extent that they can’t get on the housing ladder.

So the Local Councillors thought the way forward was to restrict new build home sales to local residents and not to buyers intent on using them for second homes. It was also deemed to be in the interests of the local micro-economy to try to reduce the overreliance of it on tourism.

You can see the logic.

But three years’ on, the average property price has grown 3 per cent year on year from the £323,000 in 2016 when the local referendum took place about introducing this policy. That is c. 14 X the median earnings in Cornwall. So the policy may have abated the price growth – although many micro property markets have experienced subdued price growth across the UK during this period – but buyers have turned their attention to investing in second hand homes. It’s a bit like blocking off one part of a stream, only for it to find a different route, or way round the obstruction.

The seaside town’s rule that new homes are kept for primary residences has been criticised for hampering supply. New builds account for 5% of house sales and the ruling has deterred developers from building new homes.

How to tackle property demand and supply issues?

There are initiatives in run down areas and uninhabitable spots, of selling houses for a nominal sum of say £1 a house, on condition a minimum amount is spent on renovation and making it liveable.

Then there’s help to get a foot on the property ladder through Housing Association shared ownership, Help to Buy and there are tax disincentives to buying second properties in the form of a stamp duty surcharge.

But these are not necessarily all that relevant to St Ives (apart from the tax), given it is an idyllic seaside town, hardly run down, but less frequented in Winter and with limited career prospects beyond tourism. And this new-build policy does not necessarily address short-term lettings, which must irk many locals too.

One view is that it is a tourist business and so the town should be run more along business lines. Which partly means welcoming investment and the spending power of tourists during the Summer months and managing the trough season better. In today’s world of remote working perhaps investment in infrastructure, including broadband and other incentives for businesses would be a more worthwhile effort to create a better year-round future so that it isn’t always bigger cities that attract workers and year-round home owning.

Inspired by an FT article September 2019

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