Doubling council tax on second homes may not be bright idea

MSPs will tomorrow start taking evidence on the Scottish Government's plans to allow local authorities to charge a council tax premium of up to 100% on second homes across the country from next spring.

Humza Yousaf announced the policy in his programme for government in September after it was included in a consultation on tax reforms unveiled by the First Minister at the Scottish Trade Union Congress in April.

His rationale was two-fold; first, it will allow councils to generate more revenue, and second, it will "prioritise homes for living in and manage the impact of second or long-term empty homes".

It's likely that the measure won't go down badly with many voters. Second home owners are a relatively small and fortunate group - they number some 24,287 - and any difficulties they face will probably not command huge public sympathy.

Many people – probably most of us who are not second home owners – would instinctively be of the view 'well if you're wealthy enough to own a second home, you probably can well afford to pay the additional council tax on it'.

But delving into the details, there are hidden pitfalls and risks that the policy - which will only bring in very limited revenue due to the small number of second home owners - may not actually be in the best interests of the communities it is intending to benefit.

To my mind there are also some fundamental shortcomings in the underlying philosophy behind the policy.

First of all, is it really the fault of second homeowners that some other people can't find somewhere to buy or rent? Is the root of the problem not simply that there are not enough affordable homes in areas of high demand?

Arguably the Scottish Government should be building more affordable homes as a matter of urgency. It's an especially pressing matter as ministers want to stop people moving away from rural and island communities – the sort of area popular with second homeowners.

Similar arguments have been in play in relation to the Scottish Government's crackdown on short term lets.

The stated aim of the short term lets policy was in part to help curb the number of short term let properties in order to free up more residences for long term dwellers.

In both cases, ministers pointed the finger of blame for accommodation shortages at two groups many voters are not inclined to feel sorry for, perhaps conveniently distracting voters from asking why ministers had not done more to increase the number of affordable homes in these areas.

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In a briefing today, the Scottish Parliament's research unit have examined the policy on council tax for second homes and noted "the impact of second homes on local communities is complex and multi-faceted".

It acknowledged "a high concentration of second homes can increase house prices, reducing housing supply for local people" but it also drew attention to benefits second homes can bring to areas.

The briefing stated: "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."

In its submission to the committee landowners body, the Scottish Land and Estates argued the additional premium that councils should be allowed to charge should be limited to 50% and warned that if the premium was considerably higher then the owning of a second home would be limited to the "very rich".

The Scottish Land and Estates argued that a premium would result in only the 'very rich' owning second homes (Image: Newsquest)
"Any premium should be proportional. Second homeowners do contribute to the local economy and often have disposable income to be spent in local economies that otherwise would not," it argued.

"If the taxation is set at an unreasonably high level, second homes will be limited to the very rich and the divide between the local community and the occasional community will be more marked and divisive.

"It is unrealistic to suggest that charging excessive tax on second homes is going to solve the housing supply issues. We support the concept of local authorities using the income from second homes to fund affordable housing projects and empty home grant schemes but they must take care to strike a balance."

Indeed a report commissioned for the Scottish Government and published in October last year examined how Japan was stemming depopulation on its islands and what lessons Scotland could learn from its experience.

Interestingly, one of the successes in Japan was that the phenomenon of second homeowners could be regarded as something positive and a group who should be regarded as having the potential to become long term residents.

"What is striking in the Japanese context is that those people who regularly visit rural/island locations, perhaps to frequent second homes, or visit relatives or inherited property, are viewed positively in terms of their potential role in regional revitalisation," the study said.

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"In Scotland, particularly in the context of the increased potential of (and preference for) hybrid or home working that takes advantage of improved digital connectivity, it may be worth exploring the potential for a scheme in an island location, with high levels of second/holiday home ownership for example, that engages visitors during their stay with the view to enhancing their positive impacts by contributing skills, financial capital and networks for example."

I'm not sure if Mr Yousaf has read the report on the Japanese experience, but it could provide some useful background reading for the MSPs about to examine the First Minister's proposals for council tax premiums on second homes.