Priced Out – Tackling The Highland Housing Problem

Access to affordable housing has been a problem in the Highlands & Islands of Scotland for as long as I can remember. Forty years of hand-wringing and political hot air has done little to help.

As this open letter from a group of young people who would like to live and work on Skye demonstrates, parts of the Highlands & Islands have become so popular as retirement and holiday destinations that demand for houses from people with lots of money to spend has inflated prices far beyond what most young people who live and work here, or aspire to live and work here, can afford.

In recent years the Scottish Government has provided our housing associations and local authorities with the means to build a significant number of affordable homes, but these tend to be concentrated in centres of population and do little or nothing to help the townships and villages that are being hollowed-out by second homes and short-term letting.

There are lots of cries of “something must be done” but precious few offerings of what that “something” might be.

Andy Wightman (at the time of writing a prospective independent Scottish Parliament candidate for the Highlands & Islands) has made a commendable stab at proposing some ideas that he hopes will help, which you can find here.

Andy’s angle of attack is somewhat oblique, attempting to curb the second home market via planning controls, Council intervention into the property market, and a local capital gains tax. These will be relatively easy to evade and/or difficult to enforce, and place a heavy burden on Councils which are already struggling to meet their statutory commitments.

I think our approach has to be much more direct in order to be effective.

Viable Communities

The problem that we’re trying to solve is the hollowing-out of local communities to the extent that they are unsustainable – not enough children, not enough people of working age, not enough of a range of skills and motivations to maintain the things that make up the fabric of a viable community.

The people who are doing the greatest damage in this respect are those who buy houses to use as second homes and/or for the lucrative holiday letting market. They are inflating house prices and preventing people of working age from getting a permanent toe-hold in our communities.

Less damaging – but still problematic – are relatively wealthy people who move into the area in later life. Many of these make valuable contributions to the health of the community, but very few of them have children, or relevant skills, or the energy to participate in many of the activities – commercial and cultural – that are vital to sustain a thriving rural community.

Introducing measures that penalise people who are already second/holiday home owners or older immigrants is legally problematic and morally dubious, so we should concentrate on doing things that make it easier for people of working age to buy a house at a reasonable price, and make it more difficult for those with lots of money to inflate house prices beyond what most young people can afford.

The Register

At the heart of my proposal is a Register of people of working age who want to buy a permanent home.

The Register can be operated by the Council or an independent non-profit organisation.

Anyone, local or aspiring local, who is under 45 years of age can add themselves to the Register.

Sellers are incentivised to offer houses for sale exclusively to buyers on the Register by the provision of free home reports, free advertising, and subsidised estate agent’s fees.

Every home report provided by the Register includes an insurance value for the property. This is the actual ‘bricks and mortar’ value of the house which, in areas of high demand, tends to be significantly lower than the market value.

Land, with or without planning permission, can also be sold via the Register. A base price per hectare will be allocated to building land by the Register.

Price Inflation Fees

If a house is sold to a buyer on the Register for a price that is at or below the insurance value there is no fee to pay. The same applies to a plot of land that is sold at or below the base price set by the Register.

If a house is sold for more than the insurance value (or land is sold above the base price) a fee is payable to the Register.

The buyer and the seller are each liable to pay half of the fee.

The fee is a percentage of the sale price that exceeds the insurance value. For example, if a sale price of £220,000 is agreed for a house that has an insurance value of £200,000 the fee payable is a percentage of £20,000.

The fee rate is adjusted depending on the age of the buyer. For a buyer under 25 years old the rate might be set at 5%. A buyer who is 45 years old might be charged a fee of 30%.

Each buyer will know in advance what their fee rate will be so that they can factor it into their offer. The seller will see their fee liability for each offer that is submitted.

The purpose of the fees is to suppress the inflation of prices and allow younger people (who generally have less money to spend and more years to contribute to the community) to compete with older people (who generally have more money to spend and fewer years to contribute to the community).

Making the seller liable for 50% of the fee means that the net income from a sale to a younger buyer with a lower offer may be greater than the net income from an older buyer with a higher offer.

Fees are collected via the conveyancing solicitors on behalf of the Register, and are used by the Register to pay for home reports, estate agents’ fees, and administration costs.

Property Transaction Tax

Buyers and sellers can choose to bypass the Register and operate on the open market, but this is where the second element of my proposal kicks in.

All domestic property sales (including plots of land that have or are subsequently granted planning permission) within the areas covered by the Register are subject to a property transaction tax, which is payable by the buyer.

The rate at which this tax is applied is variable and is set by the Register.

In an area with lots of people on the Register the rate might be punitive (e.g 20% of the sale price). In areas where there is no-one on the Register the rate might be close to zero.

A 100% deferral is applied to the tax payable on all transactions that are undertaken via the Register (i.e. no tax is payable at the point of sale).

All transactions that are undertaken on the open market (i.e. outside the Register) are liable to pay the tax in full at the point of sale.

The tax is collected via the conveyancing solicitors on behalf of the Council.

The Council uses the tax revenue to pay the costs of operating the Register that are not covered by fees. Any surplus tax revenue is added to the Council’s coffers.

The purpose of the tax is to discourage house price inflation in areas of high demand by increasing transaction costs for buyers who are not eligible for inclusion on the Register.

Rules of the Register

People who have bought a house or a plot via the Register remain on the Register for as long as they are the owner of the property.

Included in their title is a legal obligation to inform the Register if they propose to change the ownership or occupancy of the house or land in any way.

Holding land for more than 12 months without full planning permission for a dwelling being granted will incur immediate full payment of the deferred property transaction tax.

Holding land with full planning permission for more than 24 months without commencing construction work on a dwelling will incur immediate full payment of the deferred tax.

Holding land for more than 48 months without completing the construction of a dwelling will incur immediate full payment of the deferred tax.

A house built on land that has been bought via the Register is subject to the same obligations as a house that’s bought via the Register.

Leaving a house unoccupied for more than 12 weeks in a calendar year without agreement from the Register will incur immediate full payment of the deferred tax.

Leasing a vacated house to someone on the Register for a minimum of six months is permitted, without penalty.

Short-term letting (e.g. B&B) while the owner remains in residence is permitted, but using a vacated house for short-term letting of any kind will incur immediate full payment of the deferred property transaction tax.

If a house or a plot was bought via the Register, selling it via the Register cancels liability for the deferred property transaction tax, but selling on the open market will incur full payment of the deferred tax by the seller at the point of sale.

Transferring ownership or occupancy of a house to someone who is older than the owner on the date of transfer will incur immediate full payment of the deferred tax.

Other rules may be required to close loopholes that have not yet been identified.

Implementation

These three mechanisms – the Register, price inflation fees, property transaction tax – will allow more people of working age to buy homes in areas where they are currently being out-bid, thereby helping to restore and sustain viable communities in these locations.

Establishing the Register requires nothing more than the support of participating communities and the local Council.

The Scottish Government already levies a Land & Buildings Transaction Tax (LBTT). This can be amended to give Councils the power to set and collect the variable local property transaction tax, which will replace the LBTT.

The positive effects of these measures can be enhanced by the measures suggested by Andy Wightman and others. Planning controls on change-of-use from a permanent residence to short-term letting, and more punitive council tax rates on second homes would certainly help. Surplus revenue from the local property transaction tax can be used to fund enforcement.

There will be resistance to these proposals from people in the property market who gain from house price inflation, but we have to decide what’s more important, protecting their profit margins or protecting the viability of our communities.

9 thoughts on “Priced Out – Tackling The Highland Housing Problem

  1. Interesting ! There are also the SG Rural and Island Funds helping communities to build for various tenures with houses always remaining affordable and providing serviced plots – Raasay , Kilbeg , Staffin are examples .These have a rural burden to keep them within the community they are set to support delivered through local Trusts and Housing enablers . Equalities and Human Rights legislation prevent some of your ideas . Will circulate your article – lots of work to do in this area . Thanks M

  2. I was showing Ronnie Macrae of the Communities Housing Trust, formerly the Highland Small Communities Housing Trust
    https://www.chtrust.co.uk/
    some land locally which would be suitable for housing, and discussing the Rural Housing Burden with him. It seems to me to be an actual example of what you are proposing, and what I was proposing many years ago. You could do worse than look it up on the above website as it covers most of the points you raise.

    As you say second homes and holiday lets will soak up any number of houses and raise the price beyond local wages unless we protect housing stock in a permanent way. So it would be great if the RHB were better known!

    Cheers, Topher.

    • As I understand it the RHB can only be applied to a title by the holder of the title.
      This restricts the price controls to properties that have been bought or built by housing associations, or are being put on the market by philanthropic sellers, which must be a tiny cohort.

      I’m attempting to describe a system where price suppression is applied across the whole housing market of the affected areas, and provides opportunities to buyers who are specifically of working age, not just ‘locals’.

      The Register that I propose has the advantage of granularity. It automatically identifies areas of high demand where controls can be more stringent, and areas of low demand where they can be more relaxed.

      Allowing a degree of competitive bidding (within the constraints of the price inflation fee) instead of someone deciding which prospective buyer is ‘more worthy’ (as must be the case with the RHB) feels less like social engineering and is less open to favouritism abuse.

      Good luck with the election, btw. Politics desperately needs engineers.

      • Hi Malcolm!

        Click to access rhb_jan_2021_final.pdf

        The conditions that a person would need to satisfy would be set before the property or land were sold, but I don’t have a problem with communities deciding what categories of people they want to encourage.

        My own interest in this as a CC member is to try to encourage landowners to release land under the RHB so the houses built cannot be swallowed up by the second home/holiday market.

        Your model is promising and I would support it, but it does cut into the ability of house owners, some of them local, to get the market price for a house. It may then be quite a hot potato politically. The RHB recognises the market value and effectively establishes a parallel market in which the owner either has to sell to another qualifying person or refunds the % put in under the RHB.

        But I agree about the problem and the bad effects it has on communities like yours and mine.

        Cheers, Topher.

        • Yes, the RHB is a good thing for new builds and getting hold of land before the price of it becomes inflated by the market is the challenge.

          And yes, my proposal does limit the sale price of existing owners, which may make it unpopular with some people, but at some point we have to decide to stop the idiocy of pumping up house prices.

          The root of the problem is the creation of money via mortgage lending and the profits that banks can make from this at almost zero risk. I would like to see this tackled at a national level by making it illegal to issue a mortgage for more than a fixed percentage of the insurance value of a property. Existing mortgage holders would have the excess capital of their loans written off, leaving them with only the interest on the excess to pay (to placate the banks). Limiting the amount of new money being created for mortgage lending would very quickly put a brake on house price inflation.

          Until that happens we have to tackle our local problem locally, and if that means pissing of people who belive they have a god-given right to perpetual house price growth then so be it.

  3. I suppose the Highland problem might be best defined s being a tension between practical economics and sentimentality, yet legislation based on mistaken philanthropy is equally dangerous as legislation based on no philanthropy. Who said this ? Andy Wightman? Jim Hunter? Nope, its a slightly paraphrased quote from Lord Colin Campbell in the Crofter in History 1885. Plus ca change. Time for new initiatives. But Dalriada’s ( his open name ) tension remains. Give a person a house they don’t own and its not much good, give them one that is theirs to keep and if they have kids who dont want to,live in the wet desert they will sell up, Suggest that Eigg’s Eigg roll project in which the landowner retains a share of a new house in exchange for a free plot is a start.

    • The economics, practical and otherwise, are designed by certain people for their particular purpose. In this case it’s the bankers, who manufacture house price inflation via mortgage lending for the purposes of accruing profits. I think we should be tweaking the design for the purpose of keeping our communities alive and kicking (or swinging camans). Nothing sentimental about it. I want there to be enough young folk to look after me in my not-too-distant dotage.

  4. There are other solutions that can be considered and developed but do we have the collective will to actually listen and attempt to understand. The current housing model is fundamentally polluted by profiteering. Housing associations have their hands tined and planning is hobbled by their centralized and narrow “rules book” mindset and deciding where people are “allowed to live”

    The world is changing and fast. We absolutely must change our ways if we are to survive and this means relocalizing as much economic activity as possible. Robert Smith’s book “Land of the lost” is heart-rending as it recounts the folk of “The vanished townships of the NE of Scotland”. Its tal that can be told of every rural community in Scotland. Its a depopulation that is revisiting us again. Different but just as insidious are the forces at play today. For the sake of our children we must fight back and help them in their fight

  5. Imagine. A local trust owns a tract/s of land. Its owned perpetuity by the community and cannot be sold.

    This trust makes land available to tenants in say 1/4 acre parcels. Enough space for a dwelling and garden
    This tenancy is at a modest ground rent
    To live on this plot the rules are you bring your dwelling onto the land and when you leave you to take it away.
    And no we are not talking about caravans but mobile timber dwellings built to building reg Gold standard and have the capacity to run 100% off grid. Water however becomes the critical driver, not energy. We have excellent options for dealing with blackwater

    When you leave this site you take your cabin with you, or you can sell it to someone. However, here is the community protection.
    The Community Trust must approve who is moving in, its in the terms of the tennancy
    The price of the cabin is capped at the price of a new one from the factory which faces only RPI not unfettered property price inflation.

    Because these dwellings are designed to be built in large volumes specifically to keep prices down whilst providing high-quality housing if you buy on a loan you can pay this of far more quickly and build cash equity instead of inflation equity.

    They could be built in Skye, Lewis and or Harris

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