Sun, Sea, Sand and Article 4 Directions

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Sun, Sea, Sand and Article 4 Directions

A persistent need for housing in Wales’ holiday hotspots has led to the Welsh Government introducing new measures for authorities to manage pressures. We dive into the challenges and opportunities for housing and holiday accommodation in Wales.
Known for its epic landscapes, rich history and Celtic language, the idyllic environment of Wales has long been sought after by holidaymakers and second homeowners.
 
Across Wales, second homes and short-term holiday lets constituted 2.5% of all dwellings in 2023[1].
 

 
Holiday hotspots within Wales included Gwynedd (13.4% of all dwellings), Pembrokeshire (10.9%) and Anglesey (9.9%):

 

 
The attractiveness of holiday destinations, coupled with the dynamic growth of digital peer-to-peer letting platforms and the resurgence of staycations immediately following the pandemic, is likely to have contributed to the increasing number of self-catering holiday homes[3]. Increased flexible, remote and hybrid working, as catalysed by the pandemic, may also have increased levels of second home ownership – allowing workers to work from (second) homes in rural locations[4]. These trends have led to concerns about the impacts of this type of accommodation on local communities.
 
In August-September 2023, Gwynedd Council consulted on whether to implement an Article 4 Direction, which it hopes will help the Council manage the number of second homes and holiday lets in its area through the planning system. If implemented[5], this would be the first Article 4 Direction of its kind in Wales. Other authorities in Wales will be no doubt considering the merits of doing the same.
 
 
 

Tax Measures, Licensing Scheme and Planning Use Classes

In 2021, the Welsh Government launched a “three-pronged approach”[6] to addressing a so-called “second homes crisis”:
 
  
 

Disaggregating the use class of the previous single category dwellinghouse makes it possible for local planning authorities in Wales, where they have evidence, to introduce Article 4 Directions in order to withdraw permitted development rights that would usually allow the change of use between Use Classes C3, C5, and C6.
 
In addition, the latest version of Planning Policy Wales (February 2024) requires local authorities to consider localised issues “such as the prevalence of second homes” when setting housing requirements. It states that local authorities can introduce a cap or ceiling on the number of second homes or short-term lets if this is justified by local evidence.
 
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Impacts of second homes and short-term holiday lets

The table below explores some of the current (perceived and actual) impacts and assumptions regarding second homes and short-term holiday lets in Wales.

Image credit: Andy Newton via Unsplash

Housing market

Local services

Socio-economic impacts

Welsh language

 

Second homes and short-term lets can bring both benefits and challenges to communities in Wales. The identified potential issues relating to house prices and the Welsh language should be considered alongside broader factors such as localised housing market trends and demographic changes, and not attributed solely to the presence of second/holiday homes. It is also important to recognise that the tourism industry, including the provision of short-term lets, provides important socio-economic benefits in terms of generating employment and attracting visitor expenditure.
 
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The Introduction of Article 4 Directions: Potential Challenges and Opportunities

The housing market
An Article 4 Direction would serve as a point-in-time freeze on the split of homes in use as main residences, second homes and short-term holiday lets. Future changes to these uses are likely to occur more slowly and infrequently, given that approval to these changes will be required through the planning system.
 
Gwynedd Council’s stated intention for its proposed Article 4 Direction is to protect dwellings for permanent occupation. However, the impact of the proposals in this regard is likely to be limited. The Bevan Institute has found that, of the 21,718 properties listed on Airbnb across Wales, 14,343 appear suitable to live in permanently, accounting for just 1% of Wales’ dwelling stock[17],[18]. By contrast, the Welsh Government estimates that 110,000 dwellings are needed across Wales between 2019 and 2039[19],[20]. Lichfields' view is that this does not reflect the actual, higher, level of housing need.
 
Research by Dr Simon Brooks, commissioned by the Welsh Government, considered the impacts of second homes (but not holiday lets) and concluded that the implementation of an Article 4 Direction may result in the emergence of two housing markets: one for main homes and another for second homes. Dr Brooks’ research also concluded that there is a “strong possibility” that house prices in the first “market” would fall and house prices in the second “market” would increase given the new constraint on supply.
 
By the same logic, we suggest that a third market could emerge for short-term holiday lets, which would also increase in value. We question the extent to which house prices may reduce in the market for “main” homes, given the influence of broader market factors.
 
  
The tourism industry
If an Article 4 Direction results in the insufficient provision of second homes and short-term lets to meet demand, this could result in limiting the number of visitors to an area and the loss of economic benefits.
  
This is a particular concern for many areas of Wales, where tourism accounts for a large proportion of the local economy. In 2022, across Wales, the tourism industry accounted for 8.7% of all employment and was the fourth largest sector across the nation[21]. Even higher levels of employment in the tourism industry were seen in several local authority areas, including Conwy (16.3%), Pembrokeshire (15.6%), Anglesey (14.6%), Ceredigion (13.3%) and Gwynedd (12.9%).
 
Figure 2 Employment in the accommodation and food sector (as a proxy for the tourism sector) (%)

Source: ONS Business Register and Employment Survey (2022)

  
An Article 4 Direction could, however, present opportunities for additional purpose-built/provided holiday accommodation to fill the gap resulting from a decline in conversions of primary homes into holiday lets. Other alternative holiday or second home accommodation may benefit, including serviced accommodation, purpose-built holiday accommodation resorts, or holiday parks with static caravans for example. These may support existing provision or could even create new opportunities for holiday accommodation.
 
The development prospects for different types of holiday accommodation will, however, hinge upon the degree of support provided in local planning policy. Local authorities should strengthen support for visitor accommodation within local policy as part of the plan-making process in order to ensure that the tourism industry can continue to grow and attract new investment. Indeed, positive and pro-active tourism policies within local development plans should reflect the requirements of Planning Policy Wales, which recognises tourism as an economic land use that is vital to economic prosperity and job creation in many parts of Wales – including its role in diversifying the rural economy.
 
With great emphasis on the plan-led system from Welsh Government, tourist industry representatives and operators should engage in the plan-making process to seek a supportive policy.
 
 
Local authorities
Research prepared by the Welsh Government concludes that evaluating the impacts of holiday homes is a matter of judgment, which should be made at the local community level[22].
 
Local authorities preparing to introduce an Article 4 Direction should compile robust, locally-specific evidence to inform their decision-making. This evidence must carefully consider the extent of area to which any Article 4 would apply. This should include an appropriate settlement sustainability study, to include an assessment of its current role and future potential in accommodating local residents and supporting the tourism economy. This study should identify the facilities and local services that are likely to be supported by permanent residents compared to those which would be supported by holidaymakers, together with a review of the housing market (including stock) and the need to support the Welsh language. A separate study that looks at how the local authority can respond to the changing needs and demands of tourist accommodation sector should also be undertaken.
 
The implementation of Article 4 Directions would sensibly go hand in hand with the preparation of a local development plan, including the setting of housing requirements. Local authorities can also then review the impacts of the wider initiatives made available to the Welsh Government to control the number of second homes and short-term lets, such as council tax premiums placed on second homes and the proposed licencing scheme for visitor accommodation[23].
 
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Conclusion

Second homes and short-term holiday lets can bring both benefits and challenges to communities in Wales. Whilst we recognise the intentions behind the proposals, we question the extent to which Article 4 Directions, such as the one proposed in Gwynedd, would be effective in improving affordability of housing for local people or retaining Welsh speakers. Whilst there are localised pressures in some areas, a focus on tourists and second homes is somewhat a deflection of the wider need to deliver more housing, both market and affordable, across Wales. The planning system at a national and local level ought to be the catalyst for ensuring there is an adequate supply of homes. The matter of short-term lets and second homes is only a small part of the jigsaw.
 
Our view is that any Councils seeking to implement an Article 4 Direction should develop a robust evidence base to inform appropriate policy by which proposals for new C5/C6 uses will be assessed. This evidence should recognise the value of the tourism industry to local communities, as well as the need to retain permanent homes for local residents and to meet emerging demand for residential and holiday accommodation.
 
Local Development Plans need to identify and meet the housing need of an area in full in order to deliver the numerous social and economic benefits of delivering new housing. Housing policies should be complemented by stronger, positive, tourist accommodation policies, in order to ensure that the tourism sector can continue to grow and invest, particularly attracting private sector investment into Wales. It is vital that Article 4 Directions do not stifle the tourism industry and the significant socio-economic benefits that this also brings for local communities.
 
Aligning the introduction of any Article 4 Directions with the publication of a new local development plan, rather than introducing them ahead of time, is therefore critical.
 
If implemented, the Article 4 Direction proposed by Gwynedd Council would be the first of its kind. As such, there is significant uncertainty regarding the implications for the housing market, the tourism industry, and local communities. We will be monitoring these outcomes with interest, as, we expect, will other local planning authorities, tourism operators and the wider development industry across Wales.
  
 
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Insight authors

 

Simon Coop

Senior Director
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Helen Ashby-Ridgway

Planning Director
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Stephanie Irvine

Senior Planner
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Joe Thompson

Senior Planner
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Footnotes

[1] Wales Council Tax dwellings data collection (2023); Valuation Office Agency (2023)
[2] Wales Council Tax dwellings data collection (2023); Valuation Office Agency (2023)
[3] Ceredigion Second Homes and Holiday Lets Data, report to Language Committee (2021): This trend is also recognisable in England, and attributed to the rise of peer-to-peer services: House of Common Library (2023)
[4]  Dr Simon Brooks, in “Second homes: Developing new policies in Wales” (2021).
[5] The proposed Direction would come into effect from 1 September 2024.
[6] Press Release: Welsh Government announces three-pronged approach to address “second homes crisis (2021)
[7] Council tax on empty and second homes
[8] Policy and Strategy A licensing scheme for visitor accommodation in Wales (July 2023): 
[9] Written statement: Changes to planning legislation and policy for second homes and short-term lets (September 2022)
[10] Dr Simon Brooks, “Second homes: Developing new policies in Wales” (2021): 
[11] In the year ending December 2022, the median house price in England was £285,000, compared to £195,000 in Wales. In Gwynedd, the median house price was £190,000. Source: HM Land Registry.
[12] RTPI: Holiday Homes in Wales: How can planning support the management of holiday homes (2021):
[13] https://www.gov.wales/non-domestic-rates-actuals-april-2021-march-2022-html
[14] Source: Business Register and Employment Survey (2022).
[15] Source: Welsh Government Regional and Local Tourism Profiles (2017-2019).
[16] “Second and Holiday Homes and the Land Use Planning System Research Report” (2002), Mark Tewdwr-Jones, Nick Gallent and Alan Mace, the Bartlett School of Planning, University College London (commissioned by the Welsh Government).
[17] Holiday lets and the private rental sector (Bevan Foundation, September 2022)
[18] Census 2021 reports 1,467,190 dwellings in Wales
[19] Future Wales The National Plan 2040 (2021) 
[20] An annual increase of 7.5%
[21] ONS Business Register and Employment Survey (2022) – accommodation and food sector (as a proxy for the tourism sector).
[22] Research on second homes: evidence review summary (Welsh Government, 2021): Research on second homes: evidence review summary | GOV.WALES
[23] For example , a third increase in council tax premiums for second homes by the Gwynedd (since 2018) appears to be mitigating against more second homes in the area – given the number of second homes has already reduced by 5% between July 2018 and July 2022 (see also Gwynedd Council, “Paper justifying the introduction of the Article 4 Direction: Gwynedd Local Planning Authority Area” (June 2023)

 

Header image credit: Beata Mitręga via Unsplash

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