Affordable housing versus rural tourism: The case of St Ives

Tourism is important for many rural economies.  Despite the fragility of visitor demand, often low paid seasonal employment, and potential adverse environmental effects, it brings income into areas which have limited alternative development opportunities.  However tourism can over-dominate an economy.  A good example of this is in St Ives, a well-known tourist destination in West Cornwall, where the demand for holiday accommodation and second homes has grown to such an extent that they now account for 25% of local housing stock. 

This increase in demand has pushed house prices beyond the means of local residents.   In response, taking advantage of the principles embedded within the UK Government’s neighbourhood planning strategy, St Ives residents voted on May 5^th to prevent the building of new second homes and holiday lets (see this BBC news item). 

Under the new regulations, housing developments will only receive planning permission if the new homes are reserved for people who live full-time in the town. In common with several SEGS colleagues (see blog posts by Josh and by Andrew) I very much support giving increased local say on how rural areas are governed, so it is great to see St Ives residents having an influence on how their town develops.  However, the nature of housing markets is such that the vote may not solve the issue it sets out to address and could, in theory, make the problem worse.  I grew up in West Cornwall and know St Ives well: in this blog I explain the potential effects of the new regulation, and why I think that the unique nature of St Ives means that some of negative effects will be avoided.

House prices reflect the balance between the demand and supply in a housing market area (that is an area which links the places where people live, work and move home). The supply of new housing is always limited by the availability of undeveloped land and, in the UK, tight planning controls. In St. Ives, the amount of undeveloped land is scarce and unlikely to satisfy local demand for housing even if no new second homes are built.  Moreover, the regulations could result in ‘substitution effects’ within the local housing market with non-local purchasers switching demand from new developments to existing houses.  This could lead to further price increases, in turn, worsening the situation for locals looking to buy in the town. The impact of this substitution effect will be exacerbated if the rate of new development slows in repose to the regulations (with one company questioning the legality of the vote).

Turning from affordable housing to another development goal, rural economies are more resilient when there is a flow of income from external sources. If the new regulations reduce the number of tourists who spend money n St Ives, those local residents working in the tourist-related businesses will lose income, as will those working in the service sectors which indirectly rely on tourism. Regardless of the impact on house prices, this is not a positive outcome for the area.  Some have argued that replacing visitors with locals will mean all-year round expenditures in the local economy as opposed to expenditures only during the tourist season.  However visitors bring new income into the region (so-called ‘basic income’), which can generate larger multiplier effects than income from local employment in supporting (non-basic) activities such as education, finance, hairdressing etc.

Having said that, there are three reasons why I think St Ives is likely to avoid the potential adverse effects of the new regulations.  First, the town has so much history and beauty that, even if visitor accommodation in the town is restricted, it is unlikely to stem the flow of income from tourists.  The regulation might even have the benefit of generating positive effects for nearby towns like Penzance who have not shared the same growth in popularity of St Ives over the last 25 years.  Second, previous research I have done - albeit at the opposite end of the UK - has shown that incomers do not always compete for the same type of houses as locals, especially not those locals looking to get onto the housing market for the first time. While there are spill over effects between housing submarkets, these can be limited in magnitude.  This should help to minimise the impact of the ‘substitution effects’ described above. Finally, there have been suggestions that visitor accommodation within St Ives has already reached its peak, with present occupancy rates less than those anticipated by landlords.  This means that the upward pressure on house prices may be slowing and adjusting in favour of locals regardless of the impact of the new regulations. 

The case of St Ives illustrates that rural development goals are often competing.  There are many other policies for improving the affordability of local housing, rather than imposing a constraint on who can get planning permission. The most obvious is to increase the taxation of second homes or holiday properties either via council tax or a land value tax.  Housing is different from most commodities in that it can fulfil two roles: it can be both an investment for the owner and provides utility as a place of residence.  Through an appropriate taxation regime, the investment benefits for second home owners or holiday letting companies could be reduced.

St Ives is special for me because of the people who live there all year around and the Cornish culture which seeps through its streets.  For this reason I hope that, without compromising the strength of the local economy, the housing market adjusts to ensure that locals are not forced from the town.  This will allow media attention to return to the less important but more perennial issue of what to do about the seagulls.

In other rural contexts, the outcomes of introducing such regulations may not be as positive, and it is important to consider the potential consequences (negative and positive) of introducing such approaches on a case by case basis.

Disclaimer: The views expressed in this blog post are the views of the author(s), and not an official position of the institute or funder.