Select Committee on Transport, Local Government and the Regions Minutes of Evidence

Examination of Witnesses (Questions 20-39)



Chris Grayling

  20. Can I just ask a point of clarification there? You talked about the gap issue in the centre of Barnsley.
  (Mr Hodgson) Yes.

  21. Let us suppose that you transposed that similar property to a greenfield site outside Barnsley, somewhere in that area. Can you give us an idea of the difference that you feel would exist between the inner city location and the greenfield location?
  (Mr Hodgson) In this specific instance it is not actually site contamination problems or anything like that. It is not costs of development as such that are causing the problem. It is the value element of it in that Barnsley has not got an office market to speak of.

  22. But there is not a difference in value? You are obviously talking about a significant value issue in the city centre. If you migrate away from the city centre out into greenfield areas closer to new developments, for example, do you find that the value issue becomes less of a problem?
  (Mr Hodgson) The only other option, talking about Barnsley, would be to move into an enterprise zone where values have increased to a point where there are financial benefits there to enable that development to happen.

Christine Russell

  23. Tom, I am particularly thinking of your schemes that I am familiar with in Manchester. You have set a very high design standard which has, if you like, set the standard for surrounding regeneration plots. How fearful are you that the new funding regime may result in the design standards falling, cutting corners?
  (Mr Bloxham) There was no market in the city centre of Manchester or many other cities and we had to do something to intervene, to change that. What we did was, with some help from English Partnerships was to invest in good design, that made the buildings of such quality that people who would not have thought of living in the city centre before came in and saw great buildings and wanted to move in there. What you find now is that from relatively small amounts of public sector investment it changed people's perceptions because of the design of the city centre and now many more developers, ourselves and others, are investing in the city centre and the market is working fine. There is no need for investment. The problem now is that in the doughnut around the city centre and the other satellite towns the market has still failed and absolutely you need some investment, you need to get the design quality right. One of the other things that is happening in the whole process is that as they have become more and more sophisticated in the appraisal process, they are always trying to cut down the gap that is needed, and one way to do that is by using quantity surveyors to cut down the cost of it, and the first thing that usually goes is the extra bits of design, so yes, I think it is a real issue.

Mrs Ellman

  24. How easy has it been to find out about the new replacement regeneration schemes?
  (Mr Bloxham) Incredibly difficult. There is no public information. I am still not totally clear about what it is. We have got people working on this virtually full time. We have got the resources now to be able to access these things and the contacts to do it. When I started up ten years ago everybody would be in the same situation. We would have absolutely no chance, I do not think, we would be able to start up and do what we did if we were a young company today.

  25. Where do you go to find out about the schemes? Is any authority committed to helping you?
  (Mr Bloxham) We go and ask whoever we can, for example, the RDAs. There is no central point of information. The DTLR are on a website. It is easier now with the web, I think. It is an issue, I think, getting that information across to people, particularly people who may not be public developers but good business people with good ideas to invest in the city centre and are unable to do so.
  (Mr Hodgson) I have been to talks by Yorkshire Forward that have said, "We are not offering that funding, full stop. We are concentrating on joint ventures", so the information is just not there to be had out of, for example, Yorkshire Forward. I just reiterate what Tom says. There is no central point of contact, there is no branded fund. PIP was branded. Wherever you went, whichever region you went to, you had the standard application forms and the standard information pack which, once you had done one, the first one might be a struggle but you could see your way through it. As Tom says, that is just not the case any more.
  (Mr Burrell) I can only agree with that point, at least in Yorkshire. It is quite mystifying as to how to access such funds. There is, it appears, a desire to do either more direct development by Yorkshire Forward or joint ventures, but then you have to discover where the joint venture is. As I said in my statement, the plethora of plans that are being prepared by Yorkshire Forward and how to get to the one that is actually an implementable one, one that we as developers could relate to, is an extremely difficult process. As I said, as a company at the present time I am concentrating my efforts simply on Objective 1 with a very specific team that has been set up to manage Objective 1.

  26. Have any of you progressed any schemes using the new funding regimes?
  (Mr Burrell) Yes. We have been successful. We have received the first major Objective 1 award in South Yorkshire.

  27. That is an Objective 1 scheme?
  (Mr Burrell) That is Objective 1.

  28. Would you say that private developers are closed in principle to RDAs conducting direct development themselves? Do you see it as against the interests of the private sector?
  (Mr Hodgson) In certain situations it can work. Take, for example, an area called Grimethorpe which, if you think Barnsley is bad, times it by ten in terms of industrial values. There Yorkshire Forward have reclaimed a large area of the land and are undertaking direct development themselves to speculatively build the first units there. That is what that area needs because no private sector developer is going to take that risk of building speculatively in that area. Yorkshire Forward can afford to. In that instance I think it has got a use there. The only danger which starts to arise is maybe when they consider sites that the private sector may consider with some gap funding.
  (Mr Burrell) I would go a stage further. In our business, which concentrates on the regeneration of brownfield sites and their subsequent development, one of our principal competitors is Yorkshire Forward. We find ourselves bidding against them on occasion to acquire property. Again in my statement I have cited an example of a site on the boundary between Sheffield and Rotherham which was an ex-colliery site which we proposed—as did others—to develop—without, I stress, public funds—because we felt we could make it work. That was three or four years ago. That site is still sitting vacant, still sitting derelict. I do not know the reasons for that, nor do the other companies, but direct development is something that we can on occasion fund but it may be acting against regeneration.

  29. Is this a matter of a conflict of interest? Is it really wrong for the public sector through the RDAs to invest directly in profitable development?
  (Mr Bloxham) I think they should only do development as a last resort if the private sector are not able to come in there. I think there is a conflict and a very deep conflict in that Yorkshire Forward on the one hand see themselves as developers trying to make money. On the other hand, they are helping regeneration where the market has failed. Do they then decide to put their investment in the safe bet where the private sector go as well, in established locations, or do they put their money in the risky bet where it is very deprived and they may lose all their money but it may help with regeneration? I think that is a very difficult equation to answer.

  30. How far would you say the knowledge and expertise of private property developers is brought into developing the regional economic strategies or influencing an individual decision of the RDA?
  (Mr Burrell) In my experience we have on very few occasions been asked for our views. There are a considerable number of people within Yorkshire Forward who are, I suppose, just as able as we are to understand the economics of property development, but there is not a readily available two-way flow of information between ourselves and the private sector and the principles within Yorkshire Forward, at least in my experience.
  (Mr Bloxham) There is so much strategy about, and it was interesting to see that nine of the 11 RDAs all have an objective to get their GDP above the average. There is some interesting maths there. For my money I would like to see a bit more direct action on sorting out the deprivation and a bit less money spent on consultants and strategies.

  Mrs Ellman: Would any of you like to give any assessment of the effectiveness of the RDA in your area?


  31. It is particularly easy to answer when you have got to go and ask them for money. Who is going to give us a glowing account of the success of an RDA?
  (Mr Bloxham) We work with four different RDAs. All of them are absolutely genuine in their desire to see regeneration. The issue with them is that they have such a wide scope of things to deliver, which is still being evolved, about economic development as well as regeneration, that they are in a very different position from the old English Partnerships were where their strategy and their objective were very clearly laid down. What they basically had to do was sort out the land. Different RDAs take different views of how important sorting out that land is. There has been a real issue as well on the actual personnel, the changes in the structure of it and the changes in personnel. There are a lot of people who had very specialist skills of delivering regeneration who have left and gone to different places.

  32. Could you tell us then which is the best RDA in your experience?
  (Mr Bloxham) No.

Ms King

  33. The inability to get funds for mixed use and residential schemes, can you tell us how big a barrier this is to urban renaissance?
  (Mr Bloxham) On the notes I have seen it is said you cannot get gap funding if something has got more than 50 per cent residential in it, and probably the majority of schemes that we have done in the past have had more than 50 per cent residential in there. I am an absolute fan of mixed use. They always say they do not want mixed use but quite often you get one building which is residential next to one building which is offices. It is still mixed use. In order to deliver the regeneration you have to be able to support residential schemes as well as commercial schemes. I would say it is fundamental.
  (Mr Hodgson) Moving away from the urban centre, a very big issue now for industrial occupiers is the demographics of a region. It is having the workforce there, it is having the workforce that will stay with that company long term. They are not so interested now in getting the big regional selective assistance grant for their business, the one-off slug if, ten years down the line, they have not got the staff to make the scheme work. To attract a big company like that into a region you need good quality housing in that region to attract the workers. It is all circular.

  34. Can you explain to us why it is important that finance costs should be included as an eligible cost of a development in appraisal?
  (Mr Bloxham) Because it is a cost that we all have to pay. It is no different from paying the builders to paying the bank. You have to borrow the money. All legitimate costs should be included. Otherwise it makes a mockery of the appraisal.

  35. So no-one can understand it?
  (Mr Burrell) In the Objective 1 appraisal process finance costs were excluded as well. The mathematics in it endeavour to address that by saying that you will be making a profit halfway through the scheme and that will accommodate the loss of finance cost, but at the end of the day it is pretty debatable.

Mr Betts

  36. Briefly on the issue of housing developments and mixed developments, you were saying a few minutes ago that effectively for Yorkshire Forward it was the Objective 1 area which was the only place where anything was happening in terms of the new regime. Is it also true that in there it appears that with this change of grant arrangement the housing schemes have virtually stopped being in the Objective 1 area?
  (Mr Burrell) We are not involved in any direct housing development and the Objective 1 projects that we are involved in do not have a housing component in them.
  (Mr Hodgson) I would say the same except that I am not aware of any schemes progressing in the region.

Ms King

  37. David, can I just ask you about the advantages of loan and rent guarantee type schemes? You described them in your memorandum. How would they be of benefit to that leisure scheme that you describe in your memorandum?
  (Mr Hodgson) By definition an Objective 1 area is a poor market. We have a leisure scheme ongoing in the centre of Barnsley again which is a nine-screen cinema, three restaurants, the standard sort of thing you see in every city centre or just out of the city centre that works everywhere else, but the values have diminished to such an extent that it does not work financially in Barnsley. The other problem that we have is that we can attract tenants to it but the tenants are generally of a weaker covenant so we cannot attract the likes of Warner Brothers cinemas, that kind of covenant. You are attracting the lower end of the market. The issue then is that as a development trader we need to sell on the investment and to sell on the investment that we have put together you are selling on an income stream. The covenant strength, the financial strength, of the tenants that we are attracting to this scheme are not of sufficient quality to enable us to realise the investment value which exceeds the cost and so we are in a cost gap situation again. As I say, we have got the tenants there but to sell the investment, if we could have something from the RDAs that guaranteed their rent for, say, five years or three y ears, whatever, that would go a long way to giving an investor the confidence to buy the scheme off us.


  38. How far would a leisure scheme like that really lift Barnsley? Is it worth doing?
  (Mr Hodgson) At the moment the only other option is to get into your car, drive on to the M1, drive two or three junctions down the M1 and into the Don Valley in Sheffield which causes some problems in practical terms of people travelling out of the town. Leisure spending is such a big spend these days that that is the investment that is being taken out of the town. If you can get this scheme away you are attracting other things as well.

  39. So it would be some jobs for people in Barnsley working in it and then it would be people spilling out from the leisure into the rest of the town centre ?
  (Mr Hodgson) Yes. It keeps people in the town centre so they are more likely to shop there than go to the cinema. At the moment they go to Meadowhall and then they go down to the Don Valley.
  (Mr Bloxham) I think the issue here though as to whether or not a particular scheme is worth supporting is in some ways irrelevant because different people take different views of whether it is worth supporting. Because of legislation, even if they think it is worth supporting, the mechanism is not there to support it.

  Chairman: As far as this Committee is concerned one of our major concerns is the whole question of urban regeneration. What we have been told, if I am right, is that really this is an opportunity to sow a seed in Barnsley which will have a knock-on effect in terms of regenerating the old part of Barnsley as opposed to moving out into greenfield or distant sites from the town centre.

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