This blog considers the number of second homes in Scotland and the policy measures that affect them.
Second homes are normally defined as a home which is not the owner’s main residence. How second homes are used, and for how long, varies. Some second homes might be occupied infrequently while others are regularly used as a holiday let or for a longer term private let.
How many second homes are there in Scotland?
Council tax data is commonly used to calculate the number of second homes. In this context, a second home is a property which is no-one’s main residence but is furnished and lived in for at least 25 days in any twelve-month period. However, this won’t include any second homes that are used for holiday lets that are classed as businesses, and therefore pay non-domestic rates rather than council tax. It also won’t include any second homes that are rented out to other people for long term residential use.
Council tax statistics show that at September 2021, there were 23,890 second homes in Scotland. Overall, this is a low proportion, 1%, of all homes in Scotland.
But there are wide variations across council areas with clear concentrations in rural areas (see below). Around 6% of homes in Argyll and Bute and in Na h-Elieanan Siar, 4% in Orkney Islands and 3% in the Highland Council area are second homes. And within these council areas there are likely to be much higher concentrations of second homes in certain communities, for example, in parts of Badenoch and Strathspey and Deeside, the proportion of second homes exceeds 20% and in Arran around 25% of privately owned homes are second homes.
The impact of second homes
Given the various uses of second homes and their geographical concentration, it’s no surprise that research has identified that the impact of second homes on local communities is complex and multi-faceted.
There are concerns that a high concentration of second homes can increase house prices, reducing housing supply for local people. A lack of affordable housing can also affect local businesses seeking to attract workers to the area.
If second homes are left empty for most of the time, there could be a negative impact on the cohesion and sustainability of local communities.
On the other hand, there may be benefits from second homes. Second homeowners tend to be wealthier than those that don’t own second homes and if they regularly spend money in the local area this may benefit local businesses. Second homes used as holiday lets can also be crucial to support local tourist economies.
A review of evidence on second homes commissioned by the Welsh Government concluded that it was difficult to be precise about the breadth of impacts of second homes on housing markets in Wales. It argued that this “remains largely a matter of judgement, likely to be best made at a local (community) level”.
Similarly, the review concluded that there is currently limited evidence of the effectiveness of various policy interventions on the demand for second home ownership.
Scottish Government policies on second homes
The Scottish Government has implemented a range of policies to help the supply of affordable homes and measures to disincentivise the purchase of second homes through taxation and regulation. Councils have flexibility as to how some of these policies are implemented.
Councils can apply a council tax discount of between 10% and 50% on second homes. Since April 2017, councils have also been able to choose to apply no discount. Job-related dwellings and purpose-built holiday homes must have a 50% discount applied.
For 2022-23, 25 of the 32 councils have removed the council tax discount for second homes while six councils have retained a 10% discount and one has a variable policy. All the councils with the highest proportion of second homes have removed the discount, while Orkney Islands Council has a variable policy.
Councils must use the income received from reducing the discount anywhere between 50% and 10% for affordable housing purposes. Any additional income received through reducing the discount on second homes below the 10% limit is not ring-fenced. In 2020-21, councils received around £21m council tax income from reducing discounts on second homes.
In Wales, councils can charge an additional amount of council tax (a ‘premium’) of up to 100% of the normal council tax on second homes. This will rise to a 300% maximum from April 2023.
In England, there are also plans to allow councils to charge a council tax premium of up to 100% on second homes. The implementation of such a policy in Scotland would need legislative change.
If a second home is available as a holiday let for 140 days or more the owner may have to pay non-domestic rates instead of council tax. Some second homeowners letting their homes may have been able to claim small business rates relief, potentially meaning they paid no tax, even though the property was not actually let out. The Scottish Government has closed this loophole. From April 2022, holiday accommodation must also be let for at least 70 days in the financial year.
Similar changes have been made in Wales and will be made in England (from April 2023). In Wales, these thresholds will be extended further from April 2023. To be liable for non-domestic rates, holiday lets will need to be available to let for at least 252 days, and actually let for at least 182 days, in any 12-month period.
Additional Land and Building Transaction Tax
Buyers of additional residential properties must pay an Additional Dwelling Supplement, an extra 4% on the total purchase price of properties costing more than £40,000. Not everyone paying the additional dwelling supplement will use it as a second home, for example, some people may buy an additional property with the sole purpose of renting it out to a tenant on a long-term basis.
Short-term lets regulation
All short-term lets in Scotland will need to be licenced by 1 July 2024 to operate. Councils will also have powers to introduce, with the approval of the Scottish Government, short-term let control areas where planning permission will normally be required before an existing dwelling can be used as a short-term let.
Licensing won’t necessarily reduce the numbers of short-term lets. The introduction of control areas, which some councils are considering, is more likely to reduce the number of short-term lets. The City of Edinburgh Council recently became the first council to have a short-term let control area approved – this will cover the whole of the city. The Highland Council has also proposed that the council ward area of Badenoch and Strathspey become a short-term let control area.
Can the purchase or occupation of second homes be restricted?
People selling homes on the open market are free to choose who to sell to.
In limited circumstances, there may be a title condition that affects how owners can sell. For example, ‘rural housing bodies’ can use a rural housing burden (via the insertion of a clause into the title conditions of a property) to pass on a discount for the benefit of the local community.
Councils also have powers as planning authorities, using planning conditions or ‘section 75 agreements’, to restrict the use of the land and/or regulate activities on land that is being developed. However, Scottish Government Planning guidance states (see paras 49 to 51), that these “can be intrusive, resource-intensive, difficult to monitor and enforce and can introduce unnecessary burdens or constraints” and advises that their used should generally be avoided.
The Highland Council has recently established a new pilot scheme encouraging property owners to sell directly to the council. The council started the scheme after it was approached by several homeowners who had inherited a property from their parents and wanted to keep it in the community.
Scottish Government plans
Although there are already a range of policy measures in place to address the issue of second homes, tensions remain.
In its long-term housing policy document, Housing to 2040, the Scottish Government says that it will, “give all local authorities powers to manage the numbers of second homes where they see this as a problem in their area.”
In addition, the Scottish Government is also reviewing the role of taxation in supporting its vision for both new and existing homes and communities.
Although there is work underway, it’s not yet clear what specific proposals might come from the Scottish Government.
Kate Berry, Senior Researcher
“Les maisons d’Inveraray, Argyll and Bute, Ecosse, Grande-Bretagne, Royaume-Uni.” by byb64 is licensed under CC BY-NC-SA 2.0.