Second thoughts on the second-home sales boom
The decision this month to scrap quarantine restrictions for vaccinated English travellers returning from France came as welcome news to Ralph and Laura Woodling. Together with their three young children, the Oxford-based couple had decamped for an extended summer break to their holiday home in the Gard department of southern France, which they purchased in July.
Financed by the sale of a rental property they owned in Oxford, it is not the purchase they would have made before the pandemic struck. Covid has shifted their priorities, Ralph Woodling says, increasing the value of longer, more rewarding holidays. Space in which to live out any future quarantines has become essential.
“From an investment point of view, it would have been more sensible to keep the house in Oxford,” says Woodling, looking out over the farmhouse’s 11 acres, frequented by wild boar and deer. “Covid brought into sharper focus the importance of enjoying every day we have.”
Across the globe, second-home owners are enjoying the benefits of new or existing properties this summer. But, for many, the pandemic has altered the calculus for owning one. Homeworking has freed people from the need to live near the office, allowing longer and more frequent use of holiday properties — blurring the distinction between primary and secondary homes and facilitating, for some, a new way of life.
Last May, Alison Grove moved with her husband and four children from their large family house in a Philadelphia suburb to their small holiday cottage in Chatham, Cape Cod. An extended summer break soon turned into a trial one-year relocation: a larger home was rented nearby, the children were enrolled in local schools and Alison began running her communications firm remotely.
“If life was going to be restricted [by Covid], we realised we wanted access to nature and the outdoors,” she says. “And a lot of people stayed through the season, it was not as quiet as it usually is so we met a lot of new people.”
This May, the family decided to make the move permanent. They have sold their Philadelphia house and are waiting patiently to find the right home in Chatham for their $2m budget — no easy task given the booming second-home market in the area.
It’s no holiday for short-term rental landlords
Holiday-let investors are another group adjusting their attitudes to second-home ownership. As tourist numbers collapsed last spring, they found themselves with empty homes and no future bookings.
“Everything was cancelled, it caused a collapse in demand for holiday apartments,” says Enrique Alcántara, president of the Association of Tourist Apartments in Barcelona.
Ninety-five per cent of his members’ properties stood empty during Spain’s lockdown last year. When restrictions eased in May, most switched to midterm or long-term tenancies, an approach that many have stuck to and that will remain popular, he thinks. For owners, revenue has dropped by about a fifth.
But the big losers, he says, are the cleaners, maintenance workers and check-in staff who facilitated short-term rentals and who are out of work permanently.
Last summer, from July to September, the total revenue collected by holiday-let landlords in Barcelona with homes listed on Airbnb or Vrbo fell 74 per cent year-on-year to $41.5m, according to AirDNA, which tracks the short-term rental market. In Lisbon, it fell by 71 per cent; in Amsterdam, by 67 per cent.
The slump in tourism was compounded by crackdowns by several national and local governments, worried that the boom in holiday rentals had made cities unaffordable for locals. In August 2020, for example, Barcelona introduced a temporary rule banning anyone from renting out a room in their home for less than 30 days. It is considering making the ban permanent.
More controls are coming. In March, the European Commission announced it was preparing new regulations for the short-term rental sector, to be effective within a year. In July, a Paris court fined Airbnb €8m for failing to comply with local listing regulations.
As of August 1, summer bookings for 2021 were still down more than 60 per cent in Paris, Barcelona, Lisbon and Amsterdam, compared with bookings made for summer 2019 by the same date.
“The largest cities, like Amsterdam, Barcelona and Paris, have seen a big loss in the number of available listings (down 30-50 per cent vs 2019 levels) and will take years to recover that supply, if it ever even recovers,” says Jamie Lane, vice-president of research at AirDNA.
Demand has been much stronger in more rural and coastal areas, though. Summer bookings in Cornwall, for example, are up 8 per cent on the summer of 2019.
“I’ve had my busiest summer ever,” says Ivan Gaston, a water engineer, who rents out a converted chapel adjacent to his home in south Wales. He will earn roughly £5,000 in August compared with a pre-pandemic average of £3,000, he says. Despite 18 months marred by travel restrictions in Wales and England, where most of his guests come from, he believes his annual profits will soon return to the previous high of £25,000 — a crucial income given that his and his wife’s pensions are small.
“We have been able to survive the most difficult period. There was always something coming in to pay the bills even when all the [lockdown and travel] rules were against us.”
A boom in “staycation” holidays in the UK this summer has brought new landlords to the market. In May, Martyn and Catherine Cashmore bought a second home in the French Alpine town of St Gervais, where they plan to spend up to half their time. Catherine intends to convert the home the couple owns in Barnstaple, north Devon, into a full-time rental business.
“The summer has been so busy. With two units we have a very strong rental [business]. Several of our friends have rented [homes] this year for the first time and they are looking to do this for the future.”
Brexit has made it more difficult and costly for Brits to spend protracted periods of time in the EU. Following the end of the transition period on January 1 this year, UK passport holders can spend only 90 days in any 180-day period in the Schengen area without a visa.
But fears that the restriction would damp demand for French holiday homes have proved unfounded, says Joanna Leggett of Leggett, a French estate agency serving mostly UK buyers. “The market is red hot,” she says. “The truth is that three months at a time is plenty for most holiday-home owners.”
The social impact of second homes
The pandemic-era boom in second homes has been a mixed blessing for local communities. For some, the flood of relocations last spring provided a lifeline to Covid-hit businesses.
Sophie Broad is the third generation of her family to run local pub The Williams Arms in Braunton, north Devon. When lockdown restrictions have allowed her to open, business has been strong. Along with a fish restaurant and a bar, which the family also own, the pub is on target for its best-ever summer. “Those with second homes are staying longer or have moved to them permanently. And tourism is up because nobody wants to go abroad.”
14,660
Number of second homes sold in Britain in the first half of 2021 — up 55 per cent on the first half of 2019, according to Hamptons
But the growing demand for second homes has driven up local property prices. So far this year, the average sale price in Braunton has been a record £439,060, up 14 per cent year-on-year, according to the estate agency Hamptons, using Land Registry data. The closest places that Broad’s permanent staff can afford to buy a home in are Barnstaple or Ilfracombe.
Second-home spots in the US are facing a similar challenge. In the Hamptons, there has been a frenzy of property buying since last spring, with the median sale price jumping 30 per cent, according to estate agency Douglas Elliman. Now local businesses are reporting staff shortages.
“This is a real estate-based economy and real estate is now at its busiest,” says assemblyman Fred Thiele, who represents an area covering much of the Hamptons at the New York state legislature. “Clearly it has helped the local economy [ . . . ] But there is an affordable housing problem that has been exacerbated.”
The communities facing a crisis
While tensions between locals and second-home owners in holiday hotspots are nothing new, this summer many communities across the UK and the US are reaching breaking point. In Cape Cod, the median sale price for a single family home hit $555,000 in July, up 17 per cent year-on-year, according to the Cape Cod and Islands Association of Realtors. In the villages of Truro and Chatham, on the Cape’s easterly edge, second homes now comprise 70 per cent of total housing stock.
The fallout from rising living costs and the economic downturn have been concentrated on poorer local residents, says Alisa Magnotta, head of the Housing Assistance Corporation, a local non-profit that helps people find homes, which has seen requests for help surge this year.
“Some people have lost everything [to Covid] — their jobs, their businesses, and their housing,” she says. “The 2021 Cape real estate market is great if you’re an investor or make New York City wages but if you’re an hourly employee like a police officer or bank teller then living here is beyond your means.”
Melanie Small, 37, a lunch lady at the elementary school in Orleans, a Cape Cod town, and her eight-year old daughter are struggling to find a place to live.
-47%
Supply of homes for sale in Cornwall in July this year compared with 2017-2019 average, according to Zoopla
At the end of July, they moved from the one-bedroom flat above a friend’s garage that she rented for $1,200 a month — well below the market rate — when the friend sold the home. Since then, they have been spending short periods staying with family and friends locally. Despite extra shifts at a local fish restaurant when her ex-partner is looking after their daughter, Small says she has no hope of affording a local home.
“In past years there’s always something via word of mouth going on Craigslist or Facebook. But there’s nothing,” she says. “It’s such a terrible feeling when you’re a parent. It feels unfair to me, I grew up here. I work in the community; I work at a school. I should be able to have a house to live in.”
Local authorities fight back
Keen to stem the affordability crisis, local councillors in Salcombe in Devon agreed a plan last month requiring all newly built homes to be used only as primary residences. The coastal town — where about 57 per cent of homes are thought to be second homes — is the latest West Country parish to try to limit the number of second-home buyers.
How effective the new measures will be is uncertain. In the Devonshire villages of Lynton and Lynmouth, years of price rises — as landlords bought up local homes to use as lucrative holiday lets — helped the permanent population fall from 200 in 1984 to 60 in 2013, says local councillor Suzette Hibbert.
That year, the council passed a rule limiting sales of new homes to buyers who would use them as their primary residences. “[The ban] didn’t make a ha’penny worth of difference,” says Hibbert. “We haven’t got the land to do new building on.”
Again, new restrictions may be on the way. In March, the UK government announced it will be closing a loophole that allows some short-term rental landlords to contribute nothing to local services by registering as a small business to avoid paying council tax, and then declaring that they do not earn enough to pay business rates. In July, the Welsh government announced a pilot scheme to increase council tax charges on second homes.
In June, New York’s legislature passed a bill levying an additional 0.5 per cent per cent real estate transfer tax to fund affordable housing (the levy structure means buying homes below $1m will pay less than they do currently), although the New York governor could still veto the measure.
Across Cape Cod, towns have passed bylaws permitting home extensions only for those who agree to rent the extra space out for affordable or other housing.
But Paul Niedzwiecki, chief executive of Cape Cod’s chamber of commerce, is looking to second-home owners themselves for support. He wants them to reject nimbyism and support essential new affordable housebuilding programmes when they are consulted on them.
“We want them to be participatory citizens about how to solve some of these problems,” he says. “They could be supportive. Or they could be the kind or people who come to the Cape and want to close the door behind them. It could go either way.”
As her family prepares for their new life in Chatham, Grove believes homeowners are starting to get the message. “People are starting to understand the ripple effect of the affordable housing shortage across all sorts of local businesses,” she says. “I think it will become the focal point: the Cape won’t be functional for anybody if that doesn’t get figured out.”
Follow @FTProperty on Twitter or @ft_houseandhome on Instagram to find out about our latest stories first