The best thing about tourists – apart from the money they spend in places that need it – is that they go home again.
That’s the lesson I took from Tanya Gold’s bracingly unsentimental portrait of Cornwall for UnHerd. It is, she says, a “lovely but hard” place – the two qualities existing side-by-side, but experienced in differing proportions depending on whether you’re there for a holiday or to make a living.
But what happens when the tourists don’t leave, but move in? Answer: house prices go up, even while local wages remain low. Property markets in some Cornish communities have been utterly distorted. According to The Economist, “at the last count, a quarter of the dwellings in St Ives were second homes or holiday lets”.
Gold says that fatalism is in the Cornish character. But if that’s true, then the people of St Ives are going against type:
“Locals worry that the town is becoming a playground for rich Londoners… So in May 2016 locals decided to do something about it, voting in a referendum to introduce a ‘principal-residence policy’, which stops newly built houses in the town from being used as second homes. The thinking went that by stopping holidaymakers from snapping up new-builds, housing would become more affordable to people who live in St Ives all year round.”
Three years on, has the policy worked? Yes, is the short answer:
“…official statistics suggest that excluding second-home buyers from the new-build market has removed a big source of demand. The price of new homes in the town is 13% below what it might have been if the previous growth rate had continued.”
We’re also told that “other Cornish towns have introduced their own versions of the policy”. However, there is a complication – the level of house building in St Ives has, apparently, “slumped”. The Economist describes this as an “unwelcome side effect”, suggesting that the outcome was both harmful and unintended.
Here’s an alternative interpretation: in some situations, deliberately slowing down the pace of development may be just what’s needed.
Obviously, this runs counter to the conventional wisdom – which rests on two fundamental assumptions: firstly, that the only way to solve the housing crisis is to build more houses; and, secondly, that property prices are a function of supply. Look more closely, however, and we can see that the first assumption is wrong and the second incomplete.
The housing crisis is first and foremost a crisis of affordability. The basic problem is that homes are too expensive, not that there too few of them. The basic solution, therefore, is to make them cheaper – or at least hold prices steady so that wages and savings can catch up.
Ah, but wouldn’t building more houses increase supply and therefore bring down prices? Not necessarily. Prices are a function of both supply and demand. If demand runs ahead of supply, then it doesn’t matter how much you build – prices will still go up. Because supply is physical (requiring bricks and mortar, workers and equipment) and demand is financial (requiring only the electronic transfer funds from one bank account to another) the latter always has the potential to outstrip the former. Never forget: money flows faster than concrete.
That’s why you see property markets overheating even during construction booms – or, rather, especially during construction booms. That’s because supply has a tendency to generate its own demand. In the context of housing, a building boom is its own best advert. It provides visible evidence of a thriving economy – and thus attracts further investor interest, which bankrolls more construction and so on and so forth.
It’s a process best served by the most noticeable kinds of development. Visibility may come from the architectural form of the buildings (the flashier the better) or the concentration of activity in certain hotspots or the already established prestige of certain locations. A measure of controversy also helps – there being no such thing as bad publicity.
Demand can be further enhanced by selling a development as a generic investment product – and not necessarily as a primary residence requiring a full time commitment by the purchaser. Hence the attraction to investors (and thus developers) of holiday homes, time shares, buy-to-let flats and so on.
When some or all of these factors align in a particular place it can be impossible to satisfy demand. Prices therefore keep rising – attracting even more speculative attention and making life ever more expensive for local people.
In these circumstances, it is entirely rational for the community to do what St Ives did and use the law to selectively curb demand – in this case by freezing out the second homers. By disrupting the circular relationship between development and speculation, prices have a chance to subside back to affordable levels.
The Economist, being a liberal publication, plainly doesn’t approve. And, to be fair, place-specific restrictions on second home ownership, buy-to-let landlords and other unwanted categories of demand do represent a barrier to the free movement of people and capital.
However, the right to free movement is not absolute. All liberals would uphold the right of individuals to restrict access to their own private property; and most liberals, apart from the ultras, believe that nations (or groups of nations like the EU) should be able to control their own borders.
And if such rights are justifiably exercised at the level of the individual and the nation, then why shouldn’t they also apply at the intermediate level – that of the community?