A colourful seaside town known famous for its colourful seafront homes and sandy beaches is facing a housing market in freefall, as dozens of holiday property owners rush to sell up in response to steep council tax hikes.

The coastal town in Pembrokeshire, recently voted the 'best' seaside town in the UK, is reportedly experiencing a wave of sell-offs after the local authority imposed a 200% council tax premium on second homes last year, which has since been reduced to 150%.

In Tenby, over a quarter of all properties are classified as holiday homes, with 154 of them listed for sale on Rightmove. According to the Principality Building Society, asking prices across Pembrokeshire have dropped by 8.9%. But estate agents suggest the fall  in Tenby is even steeper, WalesOnline reports.

Calum Phillips, senior sales negotiator with a leading estate agency in Tenby, said the tax has had a crippling effect. He told MailOnline: "The second-home tax and the effect it's had on the town is a conversation I have every day with buyers and sellers. The majority of second-home owners are looking to either sell their properties or list not to get 12-months exemption.

"Buyers know that there aren't many second-home owners in the market any more because of the tax and that's forcing down prices.

"None of the seafront properties are suitable for first-time buyers — they are still not affordable, there's no parking, no gardens. A lot of the properties have been converted into guest houses and flats, they're not suitable for families starting out. Eighty percent of our stock is out of reach for first time buyers.

"Tenby has always depended on tourism but we are driving people away. I don't see how the council is going to make any extra money from the tax if holidaymakers stop coming."

The purpose of the tax premium was to bring long-term empty properties back into use and to increase the supply of affordable housing for people in the area and enhance the sustainability of local communities. Discretion to raise such taxes was given to councils around Wales by the Welsh Government. 

Many people in Wales, particularly in rural areas along the west, south and north coasts, feel priced out of their own communities, pointing to second homes as a major driving factor for this. 

When Pembrokeshire council debated the second home council tax premium last year, members were split over the level to set it at. It was initially set at 200% but this has now been reduced. Council officials argued that every 50 percentage point cut in the premium was equivalent to a £2.6m cut in revenue for the cash-strapped local authority.

Tory councillor Di Clements wanted it reduced to 100%, saying: "I question the financial sustainability of this local authority if it relies on these council tax powers; when second home-owners throw in the towel where will the council go? In relation to second home-owners the message [we send] is clear: 'We don't want you'."

But supporters of the levy argued that long-term residents would pay the price of a cut, Councillor Tony Wilcox saying: "Why are we penalising 85-95% of our own people to pander for a political point? The overwhelming majority of our residents aren't affected by this, we are going to penalise the majority."

The council settled on a halfway reduction to 150% against the wishes of the ruling group. Council leader Jon Harvey said: "On this proposal we are talking about £2.6m loss to the council, or about 3.5% on council tax. What additional services are you prepared to cut, or are you prepared to increase council tax over and above?

"I am not prepared to justify to our residents why I voted to reduce second homes tax and then put that burden or service cuts on them, they certainly will be worse off in my opinion if this goes through."

Tenby is famous for its colourful seaside homes, cobbled streets, nightlife and the fact it has four pristine beaches all within easy reach of the town centre. In 2024, it was ranked as the best holiday destination for entertainment. Scoring 7.71 out of 10, it was highlighted for its 13th-century town walls, sandy beaches and abundance of pubs and restaurants.