Council tax for second and empty homes, and thresholds for non-domestic rates: consultation analysis

5: Impact assessment

The consultation paper notes that the Scottish Government has prepared a partial BRIA, a partial Island Communities Impact Assessment and has undertaken initial work to consider other impacts. Views and comments to help expand on these assessments were sought.

Question 21 – Please tell us how you think changes to council tax and/or non-domestic rates thresholds for self-catering accommodation might affect businesses in your area.

Around 640 respondents answered Question 21, albeit these included respondents reiterating comments at earlier questions around proposed changes to Council Tax and non-domestic rates.

There was also comment on the need for clarity, including through the definition of key terms or criteria, or suggested that further detail on the proposals is required before they can really assess how businesses might be affected.

Complexity

It was suggested that the potential impact on businesses is a complex issue that is difficult to predict. It was noted that a large number of variables may be in play, including wider economic trends such as access to labour, changing labour costs, interest rate rises and price inflation. There was also reference to other policy changes that may have an impact on businesses; Short-term let regulations, the Visitor Levy and other possible changes to the Council Tax regime were amongst the policy areas highlighted.

There were calls for a careful assessment of the proposals to identify specific impacts, including the potential for cumulative impacts as a result of multiple policy changes. A need for ongoing monitoring to assess delivery against objectives and identify any unintended consequences was also highlighted.

Whilst the complexity of the wider economic and policy environment was acknowledged, respondents also noted that business decisions can also be both personal and/or highly localised. For example, personal circumstances were seen as likely to have a bearing on whether owners choose to sell, let or renovate, and the local housing market will influence whether local residents are able to buy.

Overall impact

Potential negative impacts for businesses

Many of those commenting identified possible negative impacts on businesses, including direct impacts on accommodation providers and tourism-focused businesses.

For accommodation providers, there were concerns that proposals could reduce the supply of holiday lets, including through the closure of some self-catering businesses. In particular, it was suggested that the proposed changes to non-domestic rates could lead to a substantial number of holiday accommodation providers choosing to sell and/or stop renting their property. It was reported that this could include farmers and other landowners who have diversified into holiday let accommodation, and that the closure of this accommodation could have wider implications for the viability of their business.

Respondents also pointed to potential negative impacts on the wider tourism industry, primarily related to concerns that a fall in supply of holiday lets would lead to lower visitor numbers and/or that higher accommodation charges could limit the spending power of the remaining visitors. From a tourism and hospitality industry perspective, it was also suggested that if properties are bought for second homes, for long-term rental accommodation, or remain empty for a prolonged period, they will bring less value to other local businesses than when operating as self-catering accommodation.

Other concerns relating to a reduction in the supply of self-catering accommodation included that employment could be lost; it was noted that this could be a significant issue in areas that are particularly reliant on tourism but where, ironically, an increase in permanent housing supply is not required. There were references to cleaning and maintenance businesses and ferry services, but most frequently to the hospitality sector. There was a view that these risks could lead to business closures.

Concerns around businesses struggling, and potentially having to close, were also linked to the second homes-related proposals. For example, that second home owners may spend less within the local economy as a result of higher premiums, and/or that some higher income second home owners may choose to relocate their second home to England and Wales.

In addition to potential for localised business impacts, it was also suggested that changes could also have negative impacts at a national level. For example, there was concern that proposals could make Scotland less competitive as a tourism destination, and less attractive for inward investment.

Respondents also raised concerns that the proposals may not deliver the intended positive impacts in some parts of Scotland. It was suggested that they will not lead to an increase in the supply of affordable housing and there was scepticism about the likelihood of a substantial number of empty homes being brought back into use. It was also suggested that they could actually lead to a reduction in Council Tax receipts in some areas.

Potential positive impacts for businesses

An alternative perspective was that the proposals could have a positive impact on the self-catering accommodation sector, for example if more second-home owners are encouraged to make their properties available for short-term let. Some also suggested that the non-domestic rates proposals could benefit ‘traditional’ bed and breakfast and hotel accommodation if there were to be a reduction in the overall supply of holiday lets.

However, most of the positive business impacts identified by respondents referred to wider economic and housing market considerations. These included:

• increased visitor numbers, and by extension local spend, if changes to non-domestic rates thresholds lead to properties being let for more weeks in the year
• the knock-on effects for local businesses if the proposals lead to more empty homes being brought back into use
• lack of housing supply as a barrier to recruitment and economic growth, and the potential for more permanent housing to help address this

Finally, there was reference to the potential for proposals to improve funding for local council services. While most of these respondents highlighted improved council services as a benefit in itself, it was also noted that any increase in council spending to improve local amenities and infrastructure would benefit both residents and businesses.

Limited impact

Although most of those commenting referred to either potential positive or negative business impacts associated with proposed changes, it was also suggested that changes could have little or no impact for businesses in some areas; respondents cited evidence of the limited number of short-term lets, second homes and/or long-term empty homes in their area or noted that relatively few businesses in their area are primarily tourism focused.

It was suggested that businesses will be able to adapt, for example with accommodation owners being able to pass on additional costs through higher rental charges where demand permits. It was also suggested that property owners are likely to have the means to absorb additional costs.

Question 22 – Please tell us how you think changes to the maximum council tax rate for second and/or empty homes and non-domestic rates thresholds might affect your local area or Scotland as a whole (social, economic, environment, community, cultural, enterprise).

Around 750 respondents answered Question 22, although as at the previous question, this included comments focused on issues already covered at earlier questions. There were also more far-reaching comments, beyond the scope of the current proposals, related to wider reforms of the Council Tax and non-domestic rates regimes.

Respondents also highlighted other policy areas where they would like to see further change to better support the sustainability of local communities and economies affected by growth in second homes and holiday lets. This included reference to planning reform and priorities set out in Scotland’s Population Strategy.

Complexity

Comments reflected points made at Question 21, including suggestions that the likely impacts of the proposals are very difficult to predict. It was noted that those impacts could vary across a range of economic sectors and communities, and hence an assessment of overall impact is very challenging.

There was also a view that the likely mix of positive and negative impacts means that care will be needed to balance the needs of local businesses, home owners and the wider community. This included reference to the importance of enabling a localised, place-based approach, with local authorities able to take account of the specific needs and circumstances across their area.

Overall impact

A frequently made point was that the potential impact of the proposals will be driven to a great extent by how any funds raised are used. As at earlier questions, respondents wished to see any additional monies ringfenced to deliver benefits to local communities, most commonly the supply of affordable housing and further support to bring empty homes back into the local housing stock.

Potential negative impacts

In terms of particular types of impact, many of those commenting identified potential negative economic impacts. Concerns often reflected those voiced in relation to businesses at the previous question, for example around stifling growth in the supply of self-catering accommodation, reducing visitor numbers, and reduced spending by second home owners. It was also noted that reduced visitor numbers could have a significant adverse impact on a wide range of tourism and hospitality businesses, with potential to affect a significant source of employment in some parts of Scotland. It was felt that any additional housing supply resulting from proposed changes may be of little benefit if there is a loss of tourism-related employment.

In relation to local communities, the impact on housing supply was highlighted again, with concerns that the proposals will not lead to an increase in supply that is affordable for locals. There were also queries about whether the homes that are made available to the market (either for purchase or rent) would necessarily meet the needs of those looking for permanent housing. Other concerns included that higher Council Tax premiums could lead to further deterioration in empty homes, for example if resources that might otherwise have been used to fund renovation or repairs are diverted. Overall, the importance of a localised approach was highlighted, including that local authorities must be able to use their discretion to avoid negative impacts on their local housing system.

Also connected to local communities were concerns that:

• if the proposals led to a reduction in Council Tax receipts, for example if second home owners are able to reduce costs by reclassifying their property, funding for local services could be affected
• more second home owners using their properties for short-term let could lead to significant changes in the population mix in some communities
• rural and island areas that are reliant on the visitor economy could be significantly impacted by any reduction in visitor numbers, with the potential to worsen rural poverty and undermine the sustainability of local communities

Relatively few respondents referred to specific negative environmental impacts, although there was reference to the potential for adverse impacts on local housing quality if owners have more limited funds to renovate or maintain their properties; it was noted that this would have a negative impact on the energy efficiency of homes, and on local visual impact. It was also suggested that a reduction in visitor numbers could discourage investment in local blue/green infrastructure.

Potential negative cultural impacts were also referenced by relatively few respondents. However, these respondents expressed some significant concerns around the potential for the changes to undermine the viability of cultural amenities and events that can be significant income sources for communities. This was highlighted with reference to the extent to which tourism activity and second home owners make a significant contribution to the sustainability of these amenities and events. Similar concerns were highlighted by those who felt that proposed changes could worsen issues of depopulation in rural communities.

Potential positive impacts

Positive impacts highlighted by respondents were primarily related to the local economy, housing and the community.

Housing-related comments focused on more second homes or empty properties coming onto the market, and potential for additional Council Tax income to support increased affordable housing supply. Some highlighted that lack of affordable supply is a significant issue affecting the sustainability of many communities across Scotland. It was noted that increased housing supply could help to:

• address recruitment difficulties in communities where housing shortages have limited access to labour
• support the recruitment of key workers in particular, especially in rural and island communities.
• address de-population, including by supporting a more balanced age profile in rural communities.

It was also suggested that encouraging the renovation of empty homes would have a positive impact on the appearance and quality of local neighbourhoods. Other potential community benefits included improved sustainability of local amenities and services if the proposals result in increased Council Tax receipts.

In terms of positive environmental impacts, there was reference to better use of existing housing stock reducing the need for new housing development (and associated negative environmental impacts). Respondents also suggested that carbon impacts may be reduced if more homes are used as permanent residences, and residents are able to live closer to their work and family.

The potential for more year-round use of housing stock and more sustainable communities were also highlighted as supporting cultural amenities and events.

Limited impact

As in relation to business impacts, most of those commenting referred to either positive or negative impacts for their local area or for Scotland as a whole. However, it was suggested that proposed changes may have little or no direct impact either in their local area or in relation to the policy areas listed at Question 22 (social, economic, environment, community, cultural, enterprise). Reasons given included that the limited number of second homes, long-term empty homes and holiday lets will limit the impact of proposals in their local area. It was also suggested that the potential impact of changes will depend in part on the number of owners who simply choose to continue to pay higher Council Tax premiums.

Question 23 – Please tell us how you think the changes identified might affect island communities.

Around 615 respondents provided a comment at Question 23, with a frequently made point being that it will be important for island authorities and communities to determine how proposals are applied.

While there was a view that island communities are likely to experience a similar range of impacts as are expected across other parts of Scotland, most of those commenting thought that islands are likely to be disproportionately affected – positively or negatively. This was linked to suggestions that second and empty homes account for a significantly larger proportion of the housing stock, and that short-term lets make a very significant economic contribution for some islands.

Specific impacts identified for island communities

Respondents highlighted the extent to which the issues of housing, the economy and community are closely interconnected for Scotland’s islands. However, as is outlined below, views were very much divided on the likely balance between positive and negative impacts across these themes.

Housing

In terms of housing impacts for island communities, respondents were primarily focused on the potential for more second homes being made available for sale, and more empty homes being brought back into use. It was noted that these outcomes, if they increase supply of permanent accommodation, are consistent with the need to address depopulation and the sustainability of communities and economies across some of Scotland’s islands. Specifically, it was suggested that:

• increased supply could help curb house price inflation
• additional Council Tax income could be used to deliver additional affordable supply, including through the provision of funding to help with renovating empty homes

However, it was also suggested that the extent of any positive housing impacts is likely to vary across island communities. In particular, the proposals were seen as unlikely to benefit communities where there is no significant housing shortage, or there is a lack of housing demand. It was also suggested that any positive impact will depend on how well additional housing supply matches local housing need.

There was also a view that the anticipated positive housing impacts are unlikely to be realised across many island communities. There was reference to some of the issues noted above, such as lack of housing demand and a potential mismatch between supply and need, but also concerns that any empty or second homes becoming available to buy may be unaffordable for local residents. It was suggested that this may result in homes only being available to wealthy households. Equally, it was also noted that owners may simply choose to retain their second home or leave their property empty, including because of local market conditions.

Local economy

Views were mixed on whether the proposed changes would be likely to have a positive or negative impact on island economies, with some expecting it to vary considerably across islands. As at other questions, respondents noted that a localised approach will be required to support economic activity, and by extension sustainable communities.

Expected positive economic impacts were primarily linked to the potential for improved access to housing for workers. A shortage of affordable housing was identified as a key barrier to recruitment for some island economies, and de-population was also highlighted as limiting economic growth for some islands. It was suggested that an increase in housing supply could help to retain the local labour force and make islands more attractive to workers moving from the mainland or further afield.

However, there were also concerns about the loss of investment from second home buyers, linked to a view that this investment has been crucial in bringing empty or derelict homes back into use across many island communities. It was also suggested that loss of this investment could have an adverse impact on tourism activity if the appearance and amenity of communities are affected.

There were also more general concerns that a decline in the visitor economy, as a result of a loss of holiday accommodation and increased accommodation costs, could have a very significant, if not devastating, impact on some island communities. This was linked to loss of employment in particular. In terms of why island communities might be particularly affected, especially by any higher occupancy threshold for short-term lets, it was reported that the tourist season can be shorter on many islands.

Local communities

Most of those commenting on community impacts anticipated that the proposals would be likely to have positive impacts. This was primarily associated with a reduction in second homes and short-term lets resulting in more year-round occupancy. It was suggested that this would support the sustainability of island communities, and again there was reference to limiting rural depopulation. However, it was also acknowledged that some second homes have been passed down the generations, with the current owners retaining a strong connection to, and actively supporting, the local community.

Nevertheless, retaining or building the permanent population was seen as crucial to helping to sustain key local services, such as schools, healthcare and community facilities. There was also reference to positive cultural impacts, for example through support for local cultural amenities and events, and to the potential to support Gaelic. On this latter point, there were calls for a more detailed assessment of how the proposals could impact on Gaelic use.

Although it was thought that the proposals could have a positive impact on local communities, there were also concerns that they could have the opposite effect and could affectively undermine the sustainability of those communities. This linked back to concerns about the local economy if a substantial proportion of holiday accommodation is lost.

Approach to implementation of changes for islands

As noted earlier, respondents highlighted the importance of enabling a localised approach to implementation. In terms of the local needs and circumstances that may be relevant to implementation of changes across islands, these included the role of the visitor economy, local housing supply, and the sustainability of communities. It was also suggested that island authorities might benefit from an understanding of the different reasons for short-term lets and second home ownership, for example for work or access to education, and as additional income for island residents. As at Question 5 in relation to Council Tax premiums, there was reference to the importance of an evidence-based approach and to ensuring that local communities are involved in any decisions.

Linked to calls for a localised approach, respondents wished to ensure that additional funds raised through proposals are retained to benefit island communities. There was specific reference to using funds to support bringing empty homes back into use, to provide advice to owners on compliance with current building standards, for support with potential barriers to becoming a private landlord, and to promote options to sell at locally affordable levels. It was also suggested that additional funding may be required for island authorities where they have chosen to limit the application of changes, and thus to reduce any additional income, in order to support the sustainability of local communities and economies.

Modelling and ongoing assessment of impact was also seen as essential to better understand how proposals are affecting Scotland’s diverse island communities. This was highlighted specifically in relation to monitoring of housing impacts, and the balance between economic and community impacts.

Question 24 – Do you think there are any equality, human rights, or wellbeing impacts in relation to the changes set out in the consultation?

Responses to Question 24 are set out in Table 22 below.

Percentages may not sum to 100% due to rounding

A small majority of respondents – 53% of those answering the question – thought there are equality, human rights, or wellbeing impacts in relation to the changes set out in the consultation. Of the remaining respondents, 21% did not think there would be impacts and 26% did not know.

Please give reasons for your answer

Around 470 respondents provided a comment at Question 24.

This included respondents of the view that the proposed changes should not have any equality, human rights, or wellbeing impacts. Their further comments included that the proposals will apply equally to all population and community groups, and thus will not have a particular impact on people with protected characteristics.

However, there was also reference to the importance of exemptions and enabling local authorities to use discretion in their application of proposed changes; this was seen as a way of helping ensure that those with protected characteristics are not disadvantaged.

Respondents answering ‘no’ at Question 24 included those who expected any equality impacts to be positive, for example by further supporting the right to adequate housing. While it was suggested that proposals are likely to have some negative impact on owners of second or empty homes and self-catering accommodation providers, these respondents did not see this as a human rights issue. Indeed, proposals were described as ensuring that owners make a fair contribution to addressing inequalities in access to housing associated with second homes, empty homes and short-term lets.

Equality, human rights and wellbeing impacts

Most of those commenting thought that the proposals will have equality, human rights, and/or wellbeing impacts, including a view that a full Equality Impact Assessment (EQIA) is required before the proposals are progressed. This was seen as crucial in identifying and mitigating any negative impacts, with a particular focus on potential impacts for people with protected characteristics. It was also suggested that local EQIAs may be necessary, for example to inform local authorities’ use of exemptions and other local discretion. There were also calls for local authorities to be open and transparent about how the policy approach they plan to take will further equality and wellbeing.

Respondents also noted that the potential for changes to deliver positive equality impacts may be dependent on how any additional income is used, and again there were calls for this to be at the discretion of local authorities. However, there were also calls for some kind of provision which ensures that these decisions are focused on reducing poverty and inequality.

Fairness and inequality

Picking up on this theme, comments on the potential impact of the proposed changes often focused on helping to address inequality across local communities, especially in terms of access to housing and distribution of wealth. Further comments included that:

• certain groups have been disproportionately affected by housing shortages and barriers to accessing suitable accommodation, for example, key workers, disabled people, younger people, lower income households and seasonal workers
• certain geographical communities, and in particular rural and island communities, have been most affected by second home ownership and the prevalence of holiday lets

Respondents noted that improving access to housing for these communities will come at some cost to owners of second homes, empty homes and self-catering accommodation, and saw a need to balance the approach to housing need with support for sustainable economies. However, there was also a view that the proposed changes are progressive, in terms of redressing the negative impact of these property uses on local communities; ensuing that businesses and owners of second or empty homes make a fair contribution and help support the communities that are affected by their property choices was seen as reasonable.

There were also concerns around the potential for proposals to have a disproportionate and negative impact on property owners. It was suggested that the changes will unfairly penalise owners for investing in local communities, and potentially discriminate against less wealthy second home owners. There was reference again to local authorities tailoring their approach to take account of local differences and to ensure that changes do not result in individual owners being unfairly penalised. Those who have inherited properties and/or are unable to sell were seen as warranting particular consideration.

Human rights impacts

Respondents noted the obligation on Scottish Government and local authorities to make best use of available resources to realise human rights objectives. This was often connected to the right to a safe, secure and affordable home, and a view that this obligation is not being met. A shortage of affordable housing supply - exacerbated by second homes, empty homes and self-catering accommodation - was seen as contributing to the problem, and by extension the proposed changes were seen as having the potential to help deliver on the right to suitable housing.

Respondents also expressed a view that it is unfair for a significant number of households to have two or more homes in areas where other households have none. It was suggested that owners’ rights must be balanced against potential for negative impacts on others.

However, there was also a view that the proposals may have limited impact and are unlikely to result in additional housing supply that is within the reach of local residents. This was seen as a particular issue in areas where any second or empty homes coming to the market are unlikely to be affordable to locals. Concerns were also raised around the around the potential impact on the rights of owners of second homes, empty homes and self-catering accommodation. For example, it was suggested that the introduction of higher Council Tax premiums would constitute discrimination on the grounds of property.

Protected characteristics

In terms of potential positive impacts on people with protected characteristics, there was a view that any improvement in housing supply would provide scope to support their specific housing needs.

However, it was also suggested that the changes to the non-domestic rates thresholds could affect certain groups of people disproportionately and negatively. This was linked primarily to evidence that the majority of short-term let owners, and those owning and running associated businesses, are women; if the proposals result in business closures, by extension those affected are more likely to be women. There were also concerns about reduced alternative employment opportunities for women affected by business closures.

Wellbeing impacts

There were only a small number of comments on wellbeing and health impacts. These were most likely to be raised in relation to any positive economic, housing and community impacts being likely to contribute to overall wellbeing. Other comments included that:

• improving access to safe and secure housing could have a particularly positive impact on wellbeing for those affected by housing shortages
• reducing rural de-population, and retaining multi-generational support networks, can play an important role in promoting and maintain community cohesion and wellbeing

There was also reference to the potential for negative wellbeing impacts, especially for businesses and empty or second home owners directly affected by the changes. Respondents noted that many businesses and home owners are already under financial pressure, and suggested that changes could cause significant financial difficulty for some. Second home owners also referred to the potential loss of positive wellbeing impacts associated with their use of a second home.