In 2022 the Welsh Government dared to do something radical. It gave councils the power to charge a second home council tax premium. The levy could also apply to homes which had been unoccupied for a long time. This meant that the amount of council tax paid by second-home owners in Wales rose by 200 per cent from April 2023.
In Wales, so many local people were being priced out of the housing market that schools were closing because there were no longer enough young families with children to populate them. Key workers were being priced out too, and there were serious concerns that no Welsh people would be able to afford to stay living and working in tourism hotspots. On that basis, the Senedd argued that the tax hike was the right thing to do.
Wales has some of the lowest numbers of first-time buyers in the country. Something needed to change. If it didn’t, the Senedd warned, communities risked being hollowed out.
Not everyone agreed. The Home Owners of Wales Group described the policy to increase taxes for second homeowners and property speculators as “morally indefensible”. And, when second homeowners started trying to sell up, local estate agents criticised the tax rise.
However, time has allowed the effects of this policy to bear fruit. The results of a pilot scheme trialled in Dwyfor on the north-west Wales coast – the first local authority to make changes to planning permission for second homes and invoke the new powers to charge higher council tax rates on second homes last year – are in.
Dwyfor was chosen because of the high concentration of second homes in the area. Since 2022, they have recorded that 25 local Welsh people have applied and been approved for a Welsh Government’s equity loan (called HomeBuy) to buy their first home. Before the introduction of higher council tax rates causing second homeowners to sell up, there had only been one application.
It’s early days, but in Wales it appears that the Welsh Government’s proactive approach has meant two things.
Firstly, there are more homes available to buy on the housing market because some second homeowners are selling up. Secondly, the local authorities who are charging higher rates of tax could now have more money to pump into other projects such as social care and affordable housing.
From April 2025, 21 of Wales’s 22 local authorities will charge a premium on second homes, including Cardiff, Swansea, Anglesey, Ceredigion and Gwynedd. The Welsh Government is encouraging them to use these council tax premiums to pay for the development of affordable housing solutions.
In time, the hope is that local people will be able to buy their own homes and gain the security of knowing that they continue to live and work in their communities.
UK Chancellor Rachel Reeves could learn a lot from the nerve of the Welsh Government, who stuck to their guns amid heavy criticism.
Across the country, there is a housing affordability crisis. More than a million households are languishing on social housing waiting lists in England alone. In 2023, the number of first-time buyers who bought a home with a mortgage was at a 10-year low.
Added to that, as exclusive data compiled for i by the property listings site Zoopla recently revealed, 60 per cent of full-time workers are now unable to buy an average two- or three-bedroom family home in almost half (109) of the local authority areas across the United Kingdom.
The new Labour Government has pledged to build 1.5 million homes over the next five years to ease this crisis, but the question of who will be able to afford them unless wages rise dramatically or house prices suddenly fall remains unanswered.
Taxing landlords to raise public funds was an option that Reeves had been rumoured to be seriously considering. She and her team had been looking at increasing the rate of capital gains tax (CGT) levied on the sale of second homes and buy-to-let properties. At present, basic-rate taxpayers pay 18 per cent on any gains made when selling property, while higher-rate taxpayers pay 24 per cent.
The idea has been kicking for around for quite some time. When Labour were in opposition as far back as 2021, Keir Starmer suggested that taxing landlords more could raise money to pay for social care.
So, more’s the pity that it is now being reported that the Chancellor has abandoned the idea because of concerns that it could slow the housing market down. Particularly when the evidence from Wales suggests that taxing second homeowners and landlords could help boost first-time buyer purchases and social housing.
Instead, the Chancellor is now only expected to go ahead only with plans to increase the amount of CGT investors pay when they sell shares.
On top of that, it is rumoured that Reeves will not extend the Tories’ stamp duty break for first-time buyers and lower-value homes which is due to end in March. It’s thought this could bring in £2bn for the Treasury, but could add around £2,500 to the average home purchase.
There’s plenty of evidence to suggest that cutting stamp duty for first-time buyers and, indeed, for older homeowners who ought to downsize and free up family homes for younger households, would rebalance the housing market.
If Reeves fails to reform this tax, it will hinder first-time buyers.
Reeves has an unenviable job, however. She must walk a tightrope when it comes to the housing market. Britain’s economy depends – arguably too much – on mortgage lending and property sales. So, any policy decision that stalls the buying and selling of homes in Britain – which increasing taxes on second home sales could do – would potentially hinder growth.
But failing to address the inequality in Britain’s housing market could also hamper the growth that Reeves so urgently needs to generate. Young adults being stuck in insecure and expensive renting leaves them with less of their income after tax to spend elsewhere in the economy.
In the longer term, failing to boost first-time buyers now will leave high numbers of people in the millennial and Generation Z age groups without assets to draw on in old age. It will also mean that pressure created by a high demand for privately rented homes is not eased by moving those who could become homeowners out of the market.
If the UK Government is serious about solving the housing crisis, this Budget needs to be multi-dimensional. They must be bold enough to tax property wealth, as they’ve done in Wales, without sacrificing buying and selling for owner-occupiers in the housing market.
Britain needs to escape from the trap of low growth and from the high house price feedback loop it finds itself stuck in. Tax reform is necessary to do that, but it won’t necessarily be popular.
