48 Britain The EconomistJuly 20th 2019
2 financial crisis. Yet many now complain
that in parts of the country, especially the
south-east, there is an oversupply of prop-
erties. (This may in fact mean simply that
they are not making quite such fat profits
per house as they once did. Most econo-
mists believe Britain continues to need far
more homes to bring down what are still
sky-high prices.) The Bank of England’s
“agents”, who speak to firms across the
country, report that housebuilders have
scaled back some large projects. Data from
Glenigan, a consultancy, suggest that the
number of residential projects acquiring
planning permission fell during 2018.
A weak housing market comes at a bad
time. Survey data suggest that gdp did not
grow in the second quarter of 2019, one rea-
son why sterling has been sliding (see Fi-
nance section). Some economists believe
the second-quarter readings are mislead-
ingly low, because firms brought forward
purchases of components to stockpile
ahead of March 29th, the original Brexit
date, and so spent the second quarter using
them up. But it would not take much for
growth to slip into negative territory. On
July 18th the official Office for Budget Re-
sponsibility warned that a no-deal Brexit
would tip Britain into recession.
One worry is that declining house
prices will dent consumer confidence,
which is already low. Research on the
American market finds that homeowners
feel poorer if the value of their house is fall-
ing, which in turn leads them to reduce
their spending. Yet studies by the Bank of
England suggest that in Britain the vagaries
of the property market have only a small ef-
fect on consumption. Household spending
is holding up fairly well so far.
The current weakness of the British
economy is really a story about invest-
ment, which has stagnated since 2017. Cap-
ital spending on transport equipment and
computers is dropping. The decline in
housing transactions explains why invest-
ment in homes, which accounts for a quar-
ter of the total, is also looking weak. Build-
ers report that it is easier to find workers
and materials than it was a few months
ago, suggesting that they have plenty of
spare capacity. And the market for paint is
again flashing red: last year British firms’
sales of the stuff dropped by 2.4%.
The housing market could well get
worse before it gets better. Help to Buy, a
government lending initiative which has
boosted house prices and transactions, will
start to be wound down in 2021. Yet this is
but a gentle gust in comparison with the
tornado of a no-deal Brexit, which could
strike on October 31st. The Bank of England
recently outlined a possible scenario in
which no-deal was associated with a one-
third drop in house prices. Another reces-
sion which starts in the housing market
may not be far away. 7O
ut-of-townershavelongflockedto
St Ives. Artists such as J.M.W. Turner
and Barbara Hepworth were drawn to the
town’s clear light. Others come for the
seafood and sandy beaches. Even the
town’s notoriously aggressive seagulls,
who dive-bomb unsuspecting tourists
and steal their Cornish pasties, are not
enough to put off outsiders. But St Ives’s
popularity has a downside: visitors
dominate the local housing market.
Locals worry that the town is becom-
ing a playground for rich Londoners,
who in the summer months whizz down
on the sleeper train from Paddington. At
the last count, a quarter of the dwellings
in St Ives were second homes or holiday
lets. So in May 2016 locals decided to do
something about it, voting in a referen-
dum 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 stop-
ping holidaymakers from snapping up
new-builds, housing would become
more affordable to people who live in St
Ives all year round.
Building firms and diy shops, for
whom second-homers are prized cus-
tomers, opposed the plan. One property
firm even challenged the policy in the
High Court. But the legal challenge failed
and the second-home ban went ahead.
Since then a few other Cornish towns
have introduced their own versions of
the policy.
Those involved in designing the plan
say that, three years on, it is too early to
assess its impact. But official statistics
suggest that excluding second-home
buyers from the new-build market has
removed a big source of demand. Thepriceofnewhomesinthetown is 13%
below what it might have been if the
previous growth rate had continued.
Locals struggling to afford a property
may like the sound of this. But it has had
an unwelcome side-effect: housebuild-
ing has slumped (see chart). Developers
who bought land when it was pricier can
in some cases no longer sell homes at a
profit. Others may be holding off from
breaking ground in the hope that the
policy is scrapped. In 2015 Acorn Property
Group, a local firm, was about to buy a
site for 34 homes, 14 of them “affordable”
(ie, sold or let at below-market rates). But
the policy made the scheme unviable
because the open-market dwellings
could no longer subsidise the affordable
ones, the company says.
Construction elsewhere in Cornwall
has held up, suggesting that broader
factors, such as Brexit-related uncertain-
ty and a national levy on second homes
introduced in 2016, are not to blame.
Meanwhile, second-home buyers in
St Ives seem to be shifting their attention
to existing buildings, which are not
covered by the policy. Data from Hamp-
tons International, a property firm,
suggest that in St Ives second-homers
form a larger share of transactions than
before the policy came into force. Ex-
cluding new-builds, prices have contin-
ued to climb. That represents a windfall
to locals who already own their homes—
and may eventually persuade even more
of them to cash in and move out.Trimmingthemainsale
Seaside propertyST IVES
The unintended consequences of a crackdown on second homesOff a cliffSources: Land Registry;
ONS; Resi Analysts *Year endingBritain, sales of newly built homes*
Q4 2011=1002011 12 13 14 15 16 17 18050100150200250
StIvesRestofCornwallDon’t feed the Londoners