Written evidence submitted by Grant Thornton
LLP
INTRODUCTION
Grant Thornton UK LLP have advised on a wide range
of major regeneration and infrastructure projects. We have advised
seven Housing Market Renewal (HMR) Partnerships and our submission
here draws primarily on the experience we have of advising on
the following aspects of HMR activity:
— Economic
options appraisals and delivery structures:
Oldham & Rochdale—Partners in Action; Hull & East
Riding—Gateway HMR; Renew North Staffordshire.
— Advice
to HMR/local authority on the selection of private sector partners—Bridging
Newcastle Gateshead HMR; Sheffield City Council Local Housing
Company (LHC).
— Development
of legacy structures—Urban Living
HMR.
— Advice
to preferred private bidder—Scotswood
Estate, Newcastle.
This submission also takes into account our wider
experience of regeneration projects which include:
— Strategic
financial and delivery advice on major social housing estate regeneration:
eg Aylesbury Estate, London Borough of Southwark; Coventry WEHM
(Wood End, Henley Green, Manor Park) ; and
— Financial
advice on public/private partnerships including the development
of Local Asset Backed Vehicles (LABV): eg Croydon Council Urban
Regeneration Vehicle (CCURV); Tunbridge Wells BC LABV, Bournemouth
BC LABV, Aylesbury Vale LABV; Watford Health Campus.
This submission is structured to consider:
— Lessons
learnt from our experience on Housing Market Renewal Partnerships—how
can we make sure any progress made is not lost?
— Comments
on the Government's wider approach to regeneration as set out
in DCLG's "Regeneration to enable growth" (Jan 2011).
Lessons learned from our experience on Housing
Market Renewal Partnerships
We have identified five critical success factors
which, in our view, HMR pathfinders needed to address in order
for the project to be successful. An assessment of how far the
HMR pathfinders have met these, and examples of where progress
has been made is given in the table that follows:
— Governance—the
role, authority and responsibility of the delivery vehicle or
unincorporated HMR partnership needs to be clearly defined and
understood by all parties, including third parties who will be
involved in delivering the vision for the area.
— Vision
and strategy—there is a need to
establish early in the process of developing a business plan for
the HMR area, the vision for the area and a coherent, robust funding
and delivery strategy. The vision needs to answer the question
of why would people want to live, work and spend their leisure
time in the HMR area. In some instances we noted that the offering
of an area had never been properly defined, let alone accepted.
This is not just physical issues but the economic vibrancy of
the area. This requires robust market insight—without clear
evidence of employment opportunities, creating exercisable demand
for mixed tenure residential developments, it is very difficult
to secure private sector risk taking and investment.
— Consultation
and engagement—there is a need to
identify and engage with local stakeholders
(the local community, local employers, Council officers and Members,
Registered Social Landlords operating in the area, regeneration
agencies) to secure their vision, commitment and investment in
the area. Without such commitment and investment, the area will
continue to be reliant on substantial amounts of public funding
and support.
— Marketing
and promotion—HMR partnerships should
actively seek out potential developers and investors to measure
awareness of the area and its potential, and to generate and maintain
interest in investing in the area.
— Delivery
planning—a key to attracting
inward investment is developing confidence amongst investors,
developers and Registered Social Landlords that there is commitment
and capacity from public sector partners to deliver the programme.
This includes:
— A
land assembly plan to ensure land can be passed on to developers/contractors
in line with the development programme;
— Funding
to de-risk sites, so that private sector partners are not asked
to assume too much early investment and risk, in challenging housing
areas;
— A strategic
infrastructure plan to identify how the infrastructure and place
making requirements of each phase will be delivered and funded;
— Free-standing
delivery plans for each sub-phase which are integrated to form
a coherent and viable whole;
— Definition
and delivery of the supporting social fabric;
— Enabling
development—developing a positive planning framework, ensuring
timely delivery of key infrastructure and utilities provision;
and
— Private
finance and investment—it is essential
to ensure funding is in place to deliver schemes over the short
and medium term; achieving private funding leverage to maximise
the benefit of public sector contributions; and securing the best
private finance terms through the competitive selection of private
sector partners.
| Critical success factors
| Our view of HMR performance | Lessons learned
|
| Vision and Strategy | The area of some HMRs were very large, and whilst this may have been important for them to take a strategic view of their area and its potential, in reality it was very difficult for HMRs to make any lasting impact other than a few showcase (already well known) developments on existing vacant land.
| Develop the longer term vision for an area but ensure a strong focus on economic viability, the current and future offering of the area, and the deliverability of discrete regeneration packages, backed by sound market intelligence of what the sustainable offering of the area/neighbourhood is..
The life of any regeneration project needs to be sufficiently long (with certainty of funding) to change the perception of an area. This transformational change can take many years.
|
| Consultation and engagement | Displacement of existing communities: in Oldham and Rochdale, the development programme projected growth in owner-occupied housing (mainly private sector funded) whilst affordable housing units were projected to fall in number. Though there was a degree of vacancy in the existing housing stock, this suggests people living in those affordable homes would be displaced to other areas.
While infrastructure investment can improve places, it is not clear that this will improve opportunities for people living in them. Regeneration still needs to effectively tackle worklessness and low skills levels for a community to achieve its full potential. This does not always happen partly because Department for Work & Pensions, as lead agency in Supporting People, takes, as the title implies, a people-based approach rather than a place based approach to intervention.
| To some extent displacement and adjacency issues are inevitable as mixed tenure communities are developed, but it is an area of concern particularly for some existing non-HMR regeneration programmes—see our comments below on the Government's wider approach to regeneration.
Joined up Government working and stream-lining budgets is required to ensure extra benefit genuinely accrues to local communities. This should remain an area of focus for local partnerships such as Local Strategic Partnerships or Local Enterprise Partnerships.
|
| Marketing and promotion | Some HMRs have had difficulty in attracting a strong list of private sector bidders for regeneration projects with strong competing propositions.
In some cases there are under-resourced client-side teams who are unable to lead negotiations with housebuilders, developers and Registered Social Landlords and drive the delivery programme forward.
Some programmes feature disparate sites with low value and/or difficult land assembly/land remediation issues
| Potential bidders for residential based regeneration schemes look for the following characteristics in investment opportunities:
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| Empowered, well-resourced internal public sector team;
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| Location and a local property market with growth potential;
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| A mixture of positive and negative site values (but not all negative);
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| Attractive sites without complications (eg 3rd party interests, contamination);
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| Strong covenant tenants for early commercial developments including public sector organisations; and
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| Delivery planning | Land assembly—some private sector developers/speculators anticipated public sector investment and secured options over strategic sites or supported individuals to purchase their Council homes under Right to Buy, (although the suspension of the Right to Buy countered this speculation) thereby making public sector led regeneration more difficult.
The HMR partnerships were put in a difficult position in that they did not have the necessary powers to implement their business plans for their neighbourhoods. They were left reliant on their sponsoring local authorities to drive land assembly through Compulsory Purchase Powers, secure planning permission and the ability to enter into contracts and joint ventures with private sector partners.
Some had very limited powers to tender and sign contracts for supplies and services. Typically they have relied on local authorities as their "Accountable body" for these functions.
These factors can undermine the confidence Private Sector Bidders have in the deliverability of the programme and increase their perception of project risk. In addition, the HMR can become "yet another" regeneration agency to compliment an existing array of predominantly public sector bodies.
| An effective alternative might be to create autonomous bodies with the powers to implement programmes eg invest, raise funding on assets they own, possibly supported by gap funding or an annual subsidy. In some HMR areas the location had received the benefit of virtually every regeneration initiative over recent years, including, Housing Action Trust, Garden City initiative, Inner Cities Fund, City Challenge, Single Regeneration Budget, New Deal for Communities Partnership, attempted or successful Large Scale Voluntary Transfer, Estate Renewal Challenge Funding transfer, Single Regeneration Pot, Urban Regeneration Company and more latterly Housing PFI. Examples of new structures involving private sector partners in a long term partnership with public sector agencies include Local Asset Backed Vehicles (such as CCURV) or Local Housing Companies (such as Sheffield LHC) that mix public sector land and funding with private sector investment, risk taking and place making ability.
In these cases the creation of delivery vehicle provides focus and the ability to raise finance and enter into contracts in its own name, but it needs to be capitalised to assume the wide range of risks inherent in regeneration projects, and crucially it needs a long term mandate to deliver sustainable regeneration.
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| Project finance | The ability to leverage third party senior debt was virtually non-existent, hence relatively little leverage of public sector gap funding was possible, other than through expensive private sector equity.
HMRs were typically developed 10-20 year programmes but received government funding which was committed on a three year rolling cycle.
| Some risks are difficult for Private Sector Partners to price thus making schemes unattractive to private funders. This could be addressed by some de-risking of schemes (eg through public sector funding for pre-development infrastructure).
|
The Government's wider approach to regeneration as set out
in DCLG's "Regeneration to enable growth"
The emphasis on localism may be compared to previous community-led
regeneration programmes such as New Deal for Communities (NDCs)
where boards of locally elected residents controlled the delivery
of programmes.
A key ambition in many of these programmes, often focussed on
large social housing estates, was the physical improvement of
the built environment. Many of the resulting regeneration masterplans
have relied on high levels of government funding, through social
housing grant, gap funding on housing stock transfers, or PFI
credits in housing Private Finance Initiatives to balance depressed
market values and high land assembly and infrastructure costs.
Whilst the emphasis on local decision making remains, the ability
to implement the original masterplan is now significantly curtailed
due to the cancellation of Round 6 PFI projects and changes to
funding for new social housing development. The key issue for
some of these projects will be their inability to reprovide new
homes for existing tenants in the same area. New affordable homes
are likely to be provided at the new "affordable rent"
(let at 80% of market rents) which in London and South-East means
a rent significantly higher than the "social rent" of
existing tenants. In less affluent areas of the country, the new
"affordable rent" may not be much higher than the social
rent, but will require a higher grant rate to enable new development
to take place.
The 2011-15 Affordable Homes Programme Framework (CLG/HCA) recognises
this and notes it will support new social rent provision "in
limited circumstances". We would highlight the need for flexibility
in these cases to ensure that as projects are re-assessed to ensure
that the best outcomes can be delivered and there is sufficient
capacity within proposals to deliver the scheme's benefits for
existing communities.
We would welcome the move towards more local control of public
finance and the incentives for growth through the introduction
of the Community Infrastructure Levy (CIL) and Tax Increment Financing
(TIF). We have worked on a number of projects where the availability
of a TIF type structure would potentially have enabled pre-funding
of key infrastructure to enable development.
April 2011
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