Select Committee on Transport, Local Government and the Regions Memoranda

Memorandum by King Sturge International Property Consultants (ERF 08)

  I am writing as the Head of Urban Regeneration and Grant at King Sturge. This national and international company of property consultants employees in excess of 1,000 people and has 14 offices throughout the UK. One of my roles within the company includes assisting private sector developers to access public sector funding to enable their schemes to go ahead. This expertise in Grant Funding is augmented by my previous post of Director of Development of Central Manchester Development Corporation where I had responsibility for encouraging and appraising applications for Gap Funding for schemes that would assist in regenerating part of the city centre of Manchester. The comments made within this report therefore reflects my experience of involvement on both sides of the process: as grant provider and as grant applicant.

  The replacement to the Partnership Investment Programme was approved in February 2001 and guidance was only issued by the Department of Transport Local Government and the Regions in November of that year. I must therefore caveat my comments with the observation that we have yet to see how the new land and property regeneration schemes perform in practice. However, even at this early stage I, and many of the developers/investors that I work with, have concerns at the limited nature of the programmes, the resources available and the mechanisms for implementing the programme.

  My overall concern relates to the inadequacy of the new programme to play a meaningful role in the Government's stated Urban Renaissance Agenda. It is acknowledged that the problems of our towns and cities will not be solved by the public sector alone and it is imperative that the private sector is encouraged to invest in urban areas, often beset with problems of market failure and high abnormal costs of a development. To do so it either requires the public sector to become directly involved by acquiring land, cleaning it up, servicing it and selling it onto the private sector at a price which reflects the state of the local market or in providing gap funding to the private sector. The former approach is clearly inefficient in that it ties up scarce public sector resources and limits the number of schemes that the public sector can afford to pursue. There is no question that Gap Funding (assisting the gap between the high costs and low value of an appropriate scheme) is more efficient in that the minimum amount of assistance to enable the development to proceed is allocated thereby allowing the public sector to pursue a greater number of projects.

  In my experience spanning almost 14 years of dealing with Gap Funding regimes, there is no question that developers appreciate the relative simplicity of this type of funding and rely upon it to bring forward difficult schemes.

  I also have a number of specific concerns regarding the newly approved Gap Funding schemes.

    —  The new system of Gap Funding restricts large developers (those with a turnover over

    40 million or an annual balance sheet total exceeding

    27 million) to projects within the Assisted Areas. Large developers generally have greater expertise and easier access to resources than small developers. On the other hand whilst small developers often having a better feel for development within their local areas, they may have difficulty raising funds for projects. This division between large and small developers seems to have no rationale and inhibits regeneration.

    —  A further anomaly is that outside the Assisted Areas, Gap Funding can only be obtained by small and medium sized companies, but only if they are going to occupy the completed development themselves! Apart from this seemingly arbitrary concession, no Gap Funding is available outside of urban areas. This is a major handicap for the public sector in an effort to regenerate towns and cities like Leicester, Bristol, Southampton and Portsmouth. If the Government's target of ensuring 40 per cent of all new development takes place on brown field sites is to be achieved and that the Government's objectives for an urban renaissance takes place in our cities and towns, it is imperative that assistance is made widely available to encourage private sector investment in those areas.

    —  Our major concern with the new Gap Funding rules is the restriction placed on assisting residential development. We have seen the benefits of Gap Funding in creating local residential markets and bringing life and vitality back into cities like Manchester, Newcastle and Leeds. However, under the new rules residential development can only be funded if it represents a minority element of a mixed use scheme, ie residential represents less than 50 per cent of the total scheme. It is difficult to see a scheme fitting this criteria. What other uses could make up this mix? Retail, office and commercial leisure uses would generally be viable on their own account. An industrial development with residential component would be unlikely to create a suitable environment for residential uses. At present I have two clients where schemes are being blocked by this rule. If gap funding is not available these schemes will not take place and approximately £50 million of private section investment will be lost to the West Midlands.

  I understand that DTLR are thinking about seeking a derogation from Europe to enable the funding of residential schemes. This needs to happen quickly to ensure that schemes are not lost.

    —  Gap Funding can only be awarded by the Regional Development Agencies or English Partnerships. The role of English Partnerships is currently under review and I would hope that their involvement in urban regeneration is strengthened. I say this because I have concerns that the Regional Development Agencies are moving away from urban regeneration and towards the promotion of economic development, inward investment etc. While this role is in itself important to regeneration, it leaves a question as to who, apart from local authorities and local agencies are promoting the Government's urban renaissance agenda. It is perhaps no coincidence that the department responsible for the Regional Development Agencies is now the Department of Trade and Industry.

  In conclusion it is my view the new land and property regeneration schemes are totally inadequate for the task of regenerating our towns and cities. A fresh look is required by Central Government and European Community to ensure that the public sector has the tools necessary to encourage the private sector to play a full and necessary role in the urban renaissance.

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