The Noughties may well be remembered, amongst other things, for the boom in second home ownership. Indeed as the decade progressed it became almost de rigueur to own or aspire to own a second home, be it in this country or abroad. Since the global recession hit, however, this segment of the property market has become much more low-key in terms of profile – but does this mean that a second home is no longer on the radar of affluent households?
According to statistics from the Department for Communities and Local Government, over 1.9 million UK households owned at least one second home in the financial year 2010/11, representing over 3 million properties both in the UK and abroad. In terms of the number of households owning a second home, this represents a 3.3 times increase since 2007/08 and a 5.7 times increase since 1996/97. In other words, second home ownership appears to be very much alive and well.
This is not too surprising given that nearly three quarters of the second homes are investment properties and only 711,000 (57 per cent of which are located outside the UK) are used solely or mainly by the owners. Indeed, the economic downturn has given rise to the quest for alternative assets which are less volatile than equities and better yielding than gilts and property certainly fits the bill, providing rental income as well as the prospect of capital growth.
Retirees also view property as an important supplement to their pension income and around 22 per cent of second home owners in the UK are retired. Within London and other major urban employment centres, there is also a pied à terre market, most notably in London, which saves the aggravation and time / cost of daily commuting to the workplace.
It is true that property is a more management intensive and less liquid asset than, for example, precious metals or commodities, however the shift in tenure in the UK – the private rented sector has expanded from 10 per cent in 2000 to a current figure of 16.5 per cent – and likely continuation of this trend means there will be more investment opportunities going forward.
Moreover, for households falling within the affluent category, lifestyle preferences regarding property have changed little since the global recession. Indeed property values in many of the preferred second home locations are still below peak levels and therefore represent a potentially even more attractive proposition.
So, where are the second home hotspots? Spain and France top the overseas locations by a considerable margin. Closer to home, analysis of council tax records (which differ somewhat from the DCLG data as they exclude investment properties which are occupied on a permanent basis) suggests that second home ownership across the whole of England is not significant at just 1.3 per cent of the total private sector dwelling stock which equates to around 245,000 properties.
However, the bulk of the stock of second homes is concentrated within a relatively small number of areas where their impact is intensified. Three regions contain nearly 60 per cent of all second homes: the South East is the most popular location, accounting for 23.1 per cent of the entire second homes’ stock, closely followed by London (19.4 per cent) and the South West (19.4 per cent).
Stepping down to local authority level, latest available council tax records tell us that Cornwall is the most popular location for second homes with 14,095 properties, accounting for 6.3 per cent of the total private housing stock in the county. Interestingly, the authorities with the next highest number of second homes are both in London – Westminster (7,152) and Kensington & Chelsea (6,737). In fact, London boroughs occupy four of the top 10 positions.
The impact on local housing markets of a high concentration of second homes can be considerable, most notably on local house price inflation due to the generally greater purchasing power of second home owners compared to local full-time residents. The City of London has the highest proportion of second homes relative to private housing stock at a staggering 30.4 per cent followed by the Scilly Isles at around one fifth.
Other high concentrations of second homes are to be found in South Hams in Devon (10.7 per cent of private stock), North Norfolk (10.5 per cent) and Purbeck in Dorset (8.4 per cent). Within London, Kensington & Chelsea (10.3 per cent) is second only to the City, while Westminster (8.9 per cent), Tower Hamlets (7.2 per cent) thanks mainly to Docklands apartments, and Camden (6.6 per cent) are also prominent.
Table: Top 10 second home locations, average price & stock
What does the future hold for second home ownership? It is highly likely that the sector will continue to grow, driven by a combination of investment and lifestyle requirements. Hopefully the Government will not target the sector as a source of additional revenue as it has the high-end residential market with recent tax hikes (although, HMRC are reported to be looking at HNWIs above a certain wealth level and owning homes abroad and abolishing council tax discounts on UK second homes).
As for the UK market where average transaction volumes are running at only around 53 per cent of what they were at the peak of the last cycle, second home buyers can at least provide some much-needed boost to market liquidity.