Second homes

Blakeney residents have just voted overwhelmingly (89.8%) for a new neighbourhood plan intended to restrict ownership of second homes. Apparently 44% of the 706 properties in the village are second homes or holiday lets.

Similar rumblings are to be heard in other resorts round the country – and these places by and large are resorts, with a local economy that would be moribund were it not for the influx of money from tourism.

Should there be restrictions on second-home ownership? That is a vexed question and one which sooner or later will be aired in Langham. It raises other questions about the infrastructure of modern Britain and the sort of society ours has become.

Why would someone want a second home? The obvious reason is that the second home is in a more attractive place than the principal home. A hope of capital appreciation may also be involved, given the headline level of inflation and the generally dismal performance of investments elsewhere in the economy, though of course capital gains tax is charged on the sale of second homes.

The principal home is likely to be in a town or city where money can be made, particularly London. The environmental degradation of British towns and cities has been accelerating for the past hundred years at least, the chief reason, latterly, being overcrowding caused by mass immigration. In our piece about house prices in Langham, we mentioned demographic change as one of the key drivers of house-price inflation, and this subsumes the phenomenon of second-home ownership.

As soon as they can – typically when they retire – a hefty proportion of urbanites sell up and move to some more congenial spot. They can hardly be blamed for this: during their working lives urban dwellers contribute the bulk of taxes paid in Britain, taxes which are used to subsidise services for country dwellers. It would be monstrous to pass legislation forcing people who have lived and worked in a degraded urban environment to grow old and die in it.

A second-home owner is in effect a part-time retiree. He escapes from the city whenever he can, to breathe clean air and live for a few days or weeks in a place devoid of ULEZ cameras and the roar of traffic. He may plan to retire to his second home when he gets the chance.

A hundred and fifty years ago the bulk of the working population in Langham was employed on the land. Now all but a tiny minority of farm workers have been replaced with machines. After the Industrial Revolution, redundant farm labourers migrated to the cities and jobs in the new factories. The cottages they had occupied fell vacant, to be gradually taken up by such people as artists (who can live more or less anywhere), retirees and, yes, second-home owners escaping from the environs of those ‘dark Satanic mills’.

The demand, particularly from retirees, was such that in the 1970s the south-eastern corner of Langham was developed (The Cornfield and adjoining properties), followed closely by the St Mary’s estate in the north-western. These houses were not built in response to a boom in the local economy, however many of them might be occupied today by people who work here.

Let us assume that second-home ownership in Langham is capable of being banned or otherwise penalised (it isn’t, as we shall see presently). The idea is to reduce local house-prices so that young people who wish to live here may do so, a laudable enough aspiration which, however, raises a hornets’ nest of political issues.

In the first place, what right do others have to tell someone how he may spend his money – money that has probably been worked very hard for and taxed over and over again? Especially when those others already enjoy the privilege of living in the pleasant surroundings where the would-be second-homer wants to buy.

Well, the government forbids us to spend our money on handguns or hard drugs because these things are judged harmful. It is harmful to compel young people to live far away from their families. But then why should impecunious people be entitled to a luxury denied to those who can afford to pay for it? Here we are skirting close to the sort of legislation brought in by the Bolsheviks, who, if they deemed it overlarge, made you share your house or flat with strangers.

Britain is a socialist country: today’s ‘conservative’ government is far further to the left than Harold Wilson’s in 1964. It may indeed come about that it mandates who may or may not live in a particular house, but we have not got there yet. Legislation restricting second-home ownership, however, might help pave the way to it. We should be careful what we wish for.

A second-home owner is wealthier than the average citizen. He can afford not only the price of the property but the costs of maintaining it and of getting there and back. Envy surely plays a part in the resentment behind these calls to action. The resentment is compounded by the fact that the second-homer often brings with him a car-load of groceries and takes his laundry back to the city to get it cleaned.

Which brings us to the impact of second homes and holiday lets on the local economy. If all these properties were occupied by local people, where would they work? Would they not have to commute to Fakenham or even further afield? Without the effects of tourism, about a fifth of the jobs in north Norfolk would go. And if these local people could not commute, or were otherwise unable to work, how could they afford to pay the level of council tax now imposed? They couldn’t. NNDC would likely go into deficit and services would be cut. And if these people couldn’t find work, they would be on benefits, leading perhaps to the downward spiral of lifelong dependence on the state.

We mustn’t forget that tourism brings a great deal of money into north Norfolk, over half a billion in 2019. A fair amount of this is spent in one way or another by second-homers. As a result we have a plethora of nice pubs, cafés and restaurants to visit year-round, as well as such facilities as the Cley Marshes Visitor Centre and the extraordinary provision of shops in Holt. We also have an array of local tradesmen to choose from.

As to the efforts of such parish councils as those at Blakeney or Burnham Market to restrict second-home ownership, we mustn’t be too hard on their naivety. They are doomed for the simple reason that it is up to the owner of two properties to declare which is his primary and which his secondary residence. If council tax on second homes is charged at the standard rate in the city, and at double or even triple the rate in Burnham Market, which property do you think will be declared as which? As the Right Honourable Ed Balls and his wife, the equally honourable Yvette Cooper, taught us in their ‘house-flipping’ episode, re-designation of one’s primary residence is easy.

The only answer to such problems as are caused by second-home ownership is to make the principal place of residence so attractive that nobody wants a second home. That is plainly not going to happen.

As with everything, there are pros and cons. Pro: year-round residents enjoy better facilities (and incidentally inflated house-prices); con: local workers, especially the young, are unable to live where they choose. That may be hard, but then so is life.

House prices in Langham

Nothing could be more illustrative of the stratospheric rise in Langham house prices than a brief history of the St Mary’s estate, presented here in the form of newspaper cuttings.

 

1972

(The hutment being the barracks for RAF Langham. Frederick Budd Ryder was the owner of Langham Hall Farm.)

13.8.76

12.11.76

(St Andrew’s Drift trends eastwards, away from Langham St Mary’s and deeper into Langham St Andrew’s.)

14.3.77

1983

1983

A house in Binham Road that when first sold (in 1977) might have gone for no more than £20,000 is now being offered for sale at £595,000 – a nearly thirtyfold increase in 46 years.

According to the Bank of England’s inflation calculator, £20,000 in 1977 had the same general purchasing power as £111,840 today. If sold for the asking price, the house in Binham Road will have outstripped general inflation by a factor of 5.32.

The causes of the increase are various. They include:

Demographics. Mass immigration was actively encouraged by the Blair government and has continued ever since. The official population of the UK now stands at nearly 68 million; in 1970 it was no more than 56 million. Unofficial estimates suggest the true figure may be as high as 80 million – and that figure was quoted in 2007. Given the volume of both legal and illegal net immigration since then, no one knows what the true number is today.

House prices in north Norfolk have been increased by an influx of wealthy retirees, many from London and the south of England, where prices are of course even higher than they are here. A one-bedroomed flat in Chelsea is currently on offer for £595,000, the same price as that three-bedroomed detached house in Binham Road. Even in outer London and into the adjoining shires, a relatively modest family home can cost well in excess of £1 million. Someone moving here from the south is liable to offer the full asking price, or even exceed it, to secure the property they have fallen in love with.

Remote working has also enabled city-dwellers to move to the countryside. The improved road links between here and London, besides the regular rail service from Sheringham to Norwich and thence Liverpool Street, make feasible an occasional visit to a London head office; and Norwich Airport is not so very far away.

Fractional reserve banking. This is the process whereby money is created by issuing debt. Except for banknotes and coins, which are produced by the government, the money in circulation has been and continues to be created by the banks. The fraction of deposits to be held in reserve is typically mandated by regulators at 10%, but can go as low as 2% or, in some cases, zero. Thus if one deposits £100 in one’s bank account, the bank is typically authorised to lend £90 of it right away to someone else. When the £90 finds it way back into that or another bank, a further £81 can be loaned. It is usually rather more complicated than that, but you can see that fractional reserve banking is inherently inflationary.

Rather than issuing its own money, which it could, the government borrows. Public spending usually exceeds the tax-take, creating a budget deficit known as the Public Sector Net Cash Requirement. Each annual PSNCR adds to the National Debt, which is the total quantity of money borrowed by the British Government at any one time through the issue of securities, whether by the Treasury or other government agencies. About two-thirds of these securities are held by insurance companies and pension funds. Interest is due every six months and is reflected in the taxes we pay.

Taxation increases the cost of goods and services to which it is applied, and because the tax burden has been steadily increasing this also causes inflation. The National Debt now surpasses £1 trillion. Factoring in all liabilities including state and public sector pensions, the real national debt is closer to £4.8 trillion, some £78,000 for every person in the UK, assuming the official figure for the population. At present the National Debt is growing by over £5,000 a second.

Regulation of the rental market. Top-down interference in any market usually leads to dysfunction, of which inflation is a common symptom. However, when it comes to dealing with the minority of landlords who prove to be unscrupulous, regulation is absolutely necessary. A consequence is that not a few would-be landlords decline to enter the market at all, limiting the supply and thereby keeping the cost of renting higher than it would otherwise have been. Recent changes in the rules concerning allowable expenses for buy-to-let landlords have driven many of them to sell up, which has (a) caused rents to rise and (b) increased the number of houses for sale and therefore had a dampening effect on prices.

High rents make home-ownership more desirable, putting pressure on house-prices, cancelling out (b), so the overall effect of government regulation of the rental market is an increase in the cost of renting, which in turn puts further pressure on house-prices.

Planning constraints. Unless the whole country is to be built over and its heritage and livability trashed, there must be constraints on the number of new houses, as here in Langham. Lanpro’s proposed scheme would irreversibly change the character of the village and have a deleterious effect on the quality of life here. Constraints in any market lead to scarcity and hence higher prices.

Artificially low interest rates. This is the big one, and a prime cause of the steep rise in the cost of housing in Britain since 2008. We need not look in too much detail at the 2008 financial crash, though we should remember that, rather than allowing the culprits to fail, the Brown government bailed them out with taxpayers’ money, thereby increasing the public debt.

Since the foundation of the Bank of England in 1694, the base rate has averaged about 5%. After the 2008 crash the BoE and other Western central banks, such as the European Central Bank and the Federal Reserve in Washington, instituted a policy of suppressing base rates. The idea was to stimulate the economies left moribund by the banking crisis. The result was cheap money, issued to some extent at the expense of savers, who for the past fifteen years have seen the value of their savings depleted by rates that fell, and indeed still fall, far short of the level of inflation.

This abundance of cheap money led directly to accelerated inflation in the housing market, where buyers must outbid each other. The result, now that interest rates are returning to the norm, is a mounting disaster for the unfortunates who had no choice but to borrow exorbitant sums if they wanted to get on the property ladder. The alternative, renting, merely sees money going out of the window, never to return.

When these people’s current mortgage deals expire, they will have to renew. Already there are stories of households facing an unaffordable trebling of their mortgage payments.

This is the result of failure to address the structural weaknesses revealed in 2008. Policymakers have simply kicked the can down the road while the problems have been mounting, and it would appear that things are coming to a head. It will be impossible to evict so many defaulting mortgagees; and even if they are evicted, where are they expected to live?

Implications for the Lanpro proposal

Cheap money has been good for developers. A return to higher rates will obviously make financing the scheme more expensive. The price of building materials has also skyrocketed, thanks in part to the backfiring of sanctions against Russia. There is an acute shortage of skilled tradesmen, exacerbated by Brexit and the return to eastern Europe of so many bricklayers, electricians, and the rest.

House prices are beginning to fall, and if there are wholesale repossessions they will fall more steeply still, making any new housing development less profitable. The NNDC is likely to insist that a third or more of the houses will be classified as affordable homes, which require funding ultimately or directly from the government. Whether the funds available will be as plentiful as they have been hitherto is debatable, again given the rise in interest rates.

In all, it would appear that events in the wider world are militating against the success of the scheme, were it to be approved, which is in itself highly unlikely, given that the 2019 application, positing a larger number of dwellings, was so roundly rejected at the pre-planning stage.

Many thanks to Edward Allen for the newspaper cuttings – what may seem to many of us like something to line the budgie’s cage with is, in the right hands, a valuable historical resource.