Examination of Witnesses (Questions 317-349)
Q317 Chair: Good afternoon,
thank you very much for coming. Welcome to the sixth evidence
session of our inquiry into Regeneration. Just for the sake of
our records, could you say who you are and the organisation you
represent?
Pat Richie: Yes;
I am Pat Richie, Chief Executive of the Homes and Communities
Agency.
Richard Hill:
I am Richard Hill. I am Executive Director of Programmes and
Deputy Chief Exec at the Homes and Communities Agency.
Q318 Chair: Thank
you very much for coming and the evidence you have already given
to us in writing. These days, you have not got much money to
do anything with, have you, in terms of regeneration?
Pat Richie: We
still have significant investment available through our investment
programmes within the agency. We have £4.5 billion
of investment in the new Affordable Rent programme across the
spending review period, £420 million available through
our property and regeneration budget, and over £2 billion
to support Decent Homes. We are changing as an organisation to
reflect the fact that we have less resource, and our focus will
be on continuing to deliver with local authorities on their priorities,
but combined with our investment, we will look to play a greater
enabling role, supporting local partners to restructure priorities
and to bring forward proposals. Our role is investment, enabling
and support at a local level, combined with a greater use of public
land to bring forward investment. There is a combination of money,
expertise and land that we will focus on delivering with local
partners through the local investment plans that we have developed
with local partners from when the agency was first established.
Q319 Chair: If
I was being very blunt, I would say that that sounded like a preprepared
answer. It did not really give me the feeling that you are a
major player anymore in regeneration. Some of it is straightforward
housing schemes; how much of that is real regeneration money?
How much do you think you are going to attract in from the private
sector to go with it?
Pat Richie: It
is difficult to separate out regeneration from housing, because
the most effective regeneration is investment in a place that
includes physical regeneration and investment in housing linked
to investment in economic development and the physical fabric
of a place. Our focus on regeneration has been to use our resource
to lever in private sector money and to work with local partners
to develop a holistic approach to regeneration, although our role
specifically is the investment in physical regeneration with a
view to levering in private sector investment.
Q320 Chair: Okay;
I will throw that one straight back at you then: you are no doubt
aware of priority sites. I think they are partly owned by you
and partly owned by RBS. There is the potential for quite a significant
sum of private sector finance from RBS, millions of pounds. They
can access ERDF funding. You have not got the grant to go with
it at present, I understand, the sort of typical gap funding you
would have had a couple of years ago or three years ago maybe.
The suggestion is you might put land in and take the value out
once the site has been developed. You are a bit risk averse,
aren't you, in terms of those sorts of proposals?
Pat Richie: We
have been working with priority sites over a number of years to
bring forward often risky economic development and regeneration
schemes where the market will not always go. We have learnt from
that experience in the work that we are now doing, using our own
land and broader public sector land to match to resources from
the private sector and European resources to bring forward projects.
Various examples of that include the work we have been doing
in Scotswood in Newcastle in the former Housing Market Pathfinder
areas, where we put some investment in alongside the Pathfinder
to derisk the site in Scotswood to then bring in investment
from a consortium of developers, Barratt, Keepmoat and Yuill,
who have then levered in significant investment on the back of
the resource that we have put in. We have worked with the local
authority to structure that deal and to bring in their land and
to bring in the land at key stages within the development, with
a view to then taking a return as different parts of the site
are played out.
Q321 Chair: In
that scheme are you putting your land in, or are there other schemes
where you are putting your land in and not wanting an up-front
price for it?
Pat Richie: There
are a number of schemes where we have been using our own land
to support development, and we recently launched our disposal
strategy for the HCA land, all of which is now available on our
website, and local authorities and developers are able to see
the range of land that we own. Within the strategy we identified
£30 million of investment to derisk some of our
own land, with a view to then bringing it forward for development
to ensure that there is regeneration and housing linked to our
land development.
An example of that might include the work we have
been doing in Sunderland to derisk the Cherry Knowle site,
which is a former hospital site, where some of our investment
will go into improving access to the site with a view to then
drawing on our development partner panel to bring forward private
sector investment to support the regeneration of that part of
Sunderland. That is our own land. We have a clear two-year strategy
for the next stage of our sites, which will support investment.
Another example would be the work we have been doing in Dover
with some of our land.
Richard Hill: Yes,
there is a big site in Dover, Connaught Barracks, which is on
the list of schemes for disposal. These schemes are not straightforward
vanilla housing schemes. There is a mixture of schemes where
they are prime sites for residential or they are mixed-use regeneration
schemes. Connaught Barracks is a good example of the latter:
you cannot do it as a straightforward housing scheme. In Dover
they still have stock retention; they still have a 20% rate of
nondecency. It is quite a poor housing offer. We think
we can use that land as a way of levering private sector investment
and doing some of the things you were talking about in terms of
priority sites. You lever private sector investment, you use
public sector assets, land and structure the deal so that the
return is shared between the public and the private sector.
Q322 Chair: You
would not sell the land or take any reward for the land at the
beginning? You would wait for the increase in value to come later
on, which you are sharing?
Richard Hill: What
we do is we put the land in at day one on the basis of a deferred
receipt. We are helping the cash flow of the project by making
sure that people can get on site. We take a building lease to
ensure that there is development—it does not add to somebody's
land bank, it does not just sit there, it does move quickly into
development—and then we take our return on sales. We would
still be ensuring value, but we would be deferring the receipt
until later in the project.
Q323 Simon Danczuk:
You talked about the need to lever in private sector investment,
and the Government has poured in millions of pounds of public
money into housing market renewal over the last few years. You
are both professionals who have worked in regeneration for many
years. Do you think cutting housing market renewal so suddenly
will result in the loss of the value of all that public investment
that has gone before?
Pat Richie: In
the 10 Housing Market Pathfinder areas last year we were investing
around £260 million, and you cannot stop that directly
without it then having an impact on places. Through our local
teams, we have been working with the local Pathfinder areas to
look at a number of things. One is dealing with those individual
families and individual households who have been left in very
difficult conditions through the halt of that programme, and we
have identified £30 million of investment that would
be matched by local government to deal with those people in some
of the worst conditions in some of the housing market areas.
We have also been looking at working to develop the legacy of
the housing market renewal areas. In a number of the Pathfinder
areas there are cleared sides that can be brought forward for
development, and we have been looking at ways in which they can
attract private sector investment. I talked about the example
in Scotswood, which is a legacy of HCA investment and housing
renewal investment, and we will invest affordable housing and
other funding in the continuation of that long-term strategy,
which was started by the housing market renewal area.
In other parts of the country, for example in Sheffield,
we have been doing some work with a local housing company with
the local authority. To continue the legacy in Gateshead, some
of the sites from the housing market renewal area are part of
a joint venture with Home Group and Galliford Try, where we have
put land in and the local authority have put land in. We will
do the earlier sites that make some funding, with a view to then
recycling that investment into the sites that are maybe more challenging
within the market.
Q324 Simon Danczuk:
But before you go on, I am just wary of getting into too much
detail, Pat. It is a broadbrush question really. You mentioned
the £30 million; it is a bid-competitive process and
not all HMR areas can bid into it: Manchester, Salford and Rochdale
cannot even bid into it. It does not compare anywhere near to
the money. My question broadly speaking is, with all your experience
in regeneration, is it fair to assume that by cutting HMR funding
suddenly so dramatically and drastically, it will result in us
not getting real value out of the public money that has been put
in before? You are basically saying yes, it has that effect.
Is that right, Pat?
Pat Richie: I
am saying that it is very difficult to suddenly stop a programme—
Simon Danczuk: Well it
has just been suddenly stopped, hasn't it?
Pat Richie: —and
not have an impact on the places where that investment has gone.
We have been working to try to deal with some of those issues
through the investment in helping people who are living in some
of the worst conditions in the housing market renewal areas.
I am also, however, saying that in a number of housing market
areas there will be sites that have been cleared, that are ready
for development and that we will work with local authorities over
a period of time to bring them forward for development. It is
a combination of dealing with some of the families who are left
in the middle of areas like Anfield and parts of Hull and supporting
them to be relocated while we look at building on the legacy of
the Housing Market Pathfinder areas in terms of development sites
that, as the market improves, could be brought forward for development.
Q325 Simon Danczuk:
So you are saying that, had the Government invested more money
and wound the project down over a more gradual period, we would
have got better value for the public investment that has gone
in before?
Pat Richie: You
also have to see that the housing market renewal sector, like
lots of other investment in housing and in regeneration, has been
operating in a very challenging market over the last couple of
years, and a market that still remains challenging. When some
of the original plans were predicated, they were based on the
ability to sell housing, they were based on individuals' ability
to access mortgages, and they have had to be reconfigured and
changed over the last couple of years to reflect the fact that
it is much more difficult to get investment in mixed-use schemes,
and it is also very difficult to ensure demand for housing for
sale when there are such constraints on the availability of mortgages.
We have worked with Housing Market Pathfinder areas and other
parts of the country to try to respond to those changes in the
market.
Richard Hill: One
of the things I think is quite difficult is to respond to that
question about all the HMR areas, given the difference in places
that Pat was just describing. On the private sector leverage
point, the range of leverage that was happening across the areas
was very different, ranging from every pound of HMR investment
to 72 pence in some areas, up to £2.37 in others. They were
at different stages of development; they were in different stages
in relationships with the private sector. Clearly in some places
like Scotswood, where there is the joint venture, you can imagine
things proceeding in a much more seamless way than in other places
that are more challenged. I think part of the answer has to be,
as Pat says, ourselves and others engaging with local authorities
in the Pathfinders, both to learn the lessons of the programme
but also to see what can be added to now, either through public
funding or through private sector funding.
Q326 Heidi Alexander:
I have some questions about the local investment plan process,
but before I ask that I would just quickly like to follow up on
the HMR point. You mentioned the £30 million fund that
exists. Could you tell me as a percentage of the outstanding
investment needs in the HMR area what that £30 million
represents?
Richard Hill: We
expect the £30 million to be stretched to £60 million
through match funding from the local authorities.
Q327 Heidi Alexander:
Are local authorities coming forward and saying that they have
those funds now?
Richard Hill: Our
deadline for bids is Wednesday, so I cannot answer that question
with absolute confidence until Wednesday, but based on the conversations
we have had with them up till now, we think there will be matched
funding to be able to stretch the fund to the £60 million.
We are also very careful to say in the guidance that we are fully
expecting to spend the full £60 million. We expected
that there would be need out there to spend that resource. The
fund is only available in the five Pathfinders you referred to:
Liverpool, Hull, Stoke, Tees Valley and East Lancshire, where
we thought there was that particular need. We have also been
quite careful to say, as part of the fund, it is there to fund
rehousing of households isolated in schemes, where there
has been a closure and people left in very difficult situations,
and to have a structured exit from the programme in the way that
Pat was describing. What we are not saying is that funding is
intended to fund additional new build or additional refurbishment.
It is a very tightly controlled set of conditions for the funding,
and we expect to spend the £60 million for that purpose.
Q328 Heidi Alexander:
Okay, so say there is £60 million and the local authorities
come forward, that money is available. If the HMR programme was
to be completed, what would that £60 million represent
in terms of the money it would take to complete the HMR programme,
roughly, as a percentage?
Richard Hill: If
you mean to complete the programme to do additional new build
and site acquisition and move some of the sites forward, I think
that is probably a much bigger number than the £60 million.
If it is to do what I have said the fund is designed to do—help
households in very difficult circumstances and have a structured
exit from the programme—we think the £60 million
in those five areas should be able to cover it.
Q329 Heidi Alexander:
I am just trying to get a picture nationally—I am sorry
to labour this point, Chair—of what this money represents
in terms of the overall scale of the challenge that is being faced
by the areas that have lost HMR. I am asking you for a rough
ballpark figure as to what this amount of money enables you to
do in terms of the amount of money that is really needed.
Richard Hill: I
think for the purposes for which the fund has been set up—to
achieve that sort of structured exit and to help households—we
expect the £60 million will be sufficient in those five
areas, and that is what we said and what the Government have said
in the guidance. If it is a broader question about the wider
needs, as Mr Danczuk was referring to in other areas, then it
is a different number and I cannot give you a ballpark estimate
for that.
Pat Richie: We
can say that last year about £260 million was invested
in the Pathfinder areas across the 10. That was expected to go
down over time.
Heidi Alexander: So it
is roughly 20%. Okay, just in terms—
Chair: Just let Steve
come in on this point, and then I will come back to you.
Q330 Steve Rotheram:
I do not know whether it helps to encapsulate the three questions
that you were asked, which I though were really important, but
Liverpool has had £127 million withdrawn from the HMR
programme, just Liverpool alone. So we are bidding in for part
of the £30 million to do part of a scheme that is currently
ongoing, not to do all the rest of it that we would have done
had the £127 million been available.
Q331 Heidi Alexander:
Just in terms of the local investment plans, I know the HCA has
been working on that sort of process for the last year, couple
of years now—
Pat Richie: Since
we were established.
Q332 Heidi Alexander:
Since you were established. Could you just tell me in your view
how successful that process has been in levering in investment
from other sources, from the private sector, from perhaps other
parts of the public sector, and just give me your view on how
successful that process has been?
Pat Richie: Since
we were established we have established a local investment planning
process, so right at the very beginning we have said that we will
be driven by local priorities through the development of local
investment plans for places. We asked local authorities to organise
around the groupings that they felt reflected their housing market
and the economy of their places. By and large local authorities
have tended to organise around similar boundaries to the emerging
local enterprise partnerships. The work we have done on the local
investment plans is similar to the geography that is coming out
of the local investment partnerships. They are locally driven,
so they are owned by the local partners—the plans belong
to local authorities—so we have enabled, facilitated, challenged
and worked with the development of the plans, but they come from
local partners developing their own priorities, and they tend
to be across areas like Tees Valley, AGMA—the association
of Manchester councils—and others. They are typically economically
driven, so the starting point is a clear economic strategy for
that place and then housing and broader regeneration investment
sits within that economic strategy.
What I think we have learned from the process is
that this has been something that local authorities have welcomed
doing but it has not always been easy. It is quite difficult
for local authorities to set priorities that make a decision that
another place should gain from investment prior to their local
authority area, so often there has been difficult choices and
tradeoffs in terms of phasing for the prioritisation of
the local investment plans. We now have full coverage of all of
the local authorities in England with the local investment plans,
so there is a clear set of local strategies that attempt to join
up money.
They have been successful in giving certainty to
the private sector in terms of long-term priorities, and that
supports more likely investment from the private sector, so if
they know there is a clear priority for that set of local authorities
it gives them certainty in terms of where they look at their investment.
We spent a lot of time working with places on whether or not
priorities are viable within the market, and we use a lot of our
expertise to look at how the LIPs can bring forward viable propositions
that lever private sector investment. Having said all of that,
the local investment plans are now being revisited in the light
of the available public sector resource and in the light of the
enabling role for HCA, so we are agreeing with local authorities
where they will use our commercial expertise to help bring forward
local investment plans, and they are also used to look at the
way in which we can use public sector land to support the development
of "regen" priorities.
It has been a learning process for local partners,
and I think the other thing to say is that it is different in
different parts of the country. For some places, working in partnership
across local authority boundaries was a new way of working. For
some places, like Tees Valley and some of the authorities in the
north-west, this was something that they did more naturally.
It is different in different parts of the country, but I think
their experience has been very helpful in terms of being clear
about longer term priorities.
Q333 Heidi Alexander:
My question very specifically was about the private sector funding
that has been levered in to date through the local investment
plan process. I know in my own local authority—I represent
Lewisham in south-east London—we have huge aspirations in
terms of regenerating our neighbourhoods and our economy. Much
of what is in our local investment plan that we have agreed with
the HCA we have not been able to bring forward because of the
financial climate, so I am asking specifically, nationally, how
much private sector funding has been levered in through these
plans? Have you got a global figure?
Richard Hill:
Over the last two years, 2009/10 and 2010/11, which are the first
two years of operation, we estimate about £600 million
of private sector leverage. That is just on our regeneration
programme, so I am not including any of the affordable housing
schemes. That includes a property regeneration budget and housing
market renewal in that category.
Is it worth just describing how that process works
in a particular place? If you take Corby for example, we have
worked with a local authority—English Partnerships did,
and then the HCA—on a regeneration scheme in the town centre
that has been very successful: there is a new railway station
and a new retail site in the centre of Corby. There is big private
sector investment from Land Sec, who have been engaged in the
scheme to date, and clearly in terms of their local investment
plan that has been the conversation we have been having.
More recently we have been trying to move on to phase
2, but we cannot proceed with it as it was originally planned.
Essentially, we were looking to do flatted housing development
in the centre of Corby. That was felt to be the priority. In
a context where the market is more flat than perhaps people had
anticipated, and there is quite a lot of consented development
around the edge of Corby, we are working with the local authority.
So we are not doing flatted development; we are doing more of
a mix of commercial and leisure, including a new cinema. We are
altering the plans and the local investment plan to cope with
that market reality, but in conversation with the local authority,
and we are still, as a priority, trying to get private sector
leverage and investment, because we cannot do it just through
public sector funding alone.
Q334 David Heyes:
It is pretty clear from the style of the evidence you have given
so far that you are keeping your chins up in this very difficult
financial climate that you are now operating in. I have to say,
the evidence you are giving us, the style of what you are presenting
us, is very different from what we have had from many of our other
witnesses, particularly from the private sector people who have
been before us. We have had a very pessimistic view from them
that the reason why the private sector is failing to engage is
that public sector money has dried up in many cases. We have
had comments about 90% of major regeneration projects in the country
being stalled at the moment. Is that a more accurate picture
than what you have been trying to paint to us so far?
Pat Richie: HCA
was launched a couple of years ago, at a time when there was a
significant housing downturn and a collapse in investment in mixed-use
schemes in particular. Our expertise has been used in a number
of instances to restructure a lot of those schemes to try to ensure
that we keep activity going. That might mean rephasing of some
of the schemes; it might mean looking at deferred return compared
with what had originally been anticipated. We have spent a long
time, I think, working with local partners to try to ensure that,
in a challenging market, activities kept going in particular places.
An example of that would be the work we have been
doing with Sheffield City Council to restructure the retail scheme
in the centre of Sheffield, where we have looked at taking a different,
longer term return on land and investment in order to ensure that
there is a rephasing of that site to bring forward investment
in potentially 2,000-plus jobs in the city centre in Sheffield.
Our experience has been that whilst it is difficult and there
is still a challenge in being able to lever in private sector
investment, if you can look at restructuring, rephasing, doing
things in smaller chunks, you can keep activity going within the
market. We think that over the last couple of years our investment
probably was responsible for around about two-thirds of the housing
that was built in the UK over the period from when we were first
launched. We particularly used investment in affordable housing,
in low-cost home ownership, to ensure that activity was continued
in keeping sites going, particularly in regeneration areas, for
example in some of the schemes in Manchester and in other northern
cities.
Richard Hill: May
I just add to that briefly? I think that is right: one does not
want to underestimate the scale of the challenge, because most
regeneration over the last 10 years has either been supported
by commercial or residential, and clearly both markets are still
difficult. I know the Committee went to New Islington, and clearly
that is an example of where we have put some investment both into
that site and the neighbouring Ancoats site to fund affordable
housing to try to keep some schemes running. Essentially, because
the market in east Manchester is relatively flat, some of the
things that we hoped to do in 2007 cannot be done in the current
market. We have been keeping things going and trying to keep
the scheme alive through engaging on the master plan and thinking
about what we can do, but it is still a challenging market in
some areas more than others.
Q335 David Heyes:
The question was really trying to get a feel of your view of the
extent to which the market has stalled. We have had private sector
expert opinion that it is as bad as 90% of major schemes stalled
at the moment. You mentioned New Islington; it is a splendid,
inspirational sort of development, but it is stalled, very definitely
stalled, at the moment, and there is little prospect of that picking
up again in the near future. What I am trying to get is your
assessment of the scale of that stalling. I guess from what you
have said that you do not think it is as much as 90%. What percentage
is it?
Pat Richie: I think
it is different in different parts of the country, and I think
if you talk to housebuilders, you get a slightly different perspective
than if you talk to mixed-use developers, particularly those who
have been working in some of the northern cities. The experience
from talking to housebuilders is that they are still interested
in looking at buying land, and they are starting to purchase more
sites. They tend to want to do smaller scale development, rather
than big, large-scale, long-term schemes, so we have done quite
a bit of work in looking at structuring things in bitesized
chunks, if you like, to be able to bring in investment, and the
investment that the Government recently announced in FirstBuy—which
is an initiative to support first-time buyers to come into the
market—will help investment in housing developments in particular,
where about 10,500 individuals will be supported to access a mortgage
by help from the Government and from the HCA to get 20% deposit
to allow them then to borrow against that from a mortgage lender.
It varies, I think, across different parts of the
country, but certainly in some of the schemes mentioned, through
investment in market rent, through investment in affordable homes,
we have been able to ensure that some of the properties that were
already built have been occupied, and we have been able to ensure
that some of the phases are brought forward to ensure that development
is kept going. It is, however, still challenging, particularly
for mixed-use development.
Q336 James Morris:
You have a role in disposing of assets previously held by the
RDA. Is your role going to be as a broker to facilitate a fire
sale, or have you got a more strategic view about how those assets
should be deployed for regeneration?
Pat Richie: We
are working with the Department for Business, Innovation and Skills
and CLG to look at the options for the disposal of the RDA assets.
That is subject to ministerial announcement fairly imminently.
The proposal at the moment is to look at the development of something
called the stewardship model, which would involve working with
local authorities, through local enterprise partnerships, to bring
forward the development of the RDA assets in a way that is informed
by local partners. Our role, subject to ministerial approval,
will be to work with local authorities to ensure that the RDA
assets are used for the purpose for which they were purchased,
which is to create jobs and to support local business development.
Q337 James Morris:
Just to be clear, when you talk about stewardship, does that
mean control?
Pat Richie: It
means that we will work with local partnerships to agree a long-term
plan for the use of the RDA sites, often sites that are alongside
our own ownerships in a number of regeneration schemes. That
plan would then be subject to what we are calling a co-operation
agreement with that local partnership, and any income from the
assets would be then used at a local level to support the development
of those assets that need investment.
We have also been working with the Department for
Business, Innovation and Skills and with CLG to look at whether
some of the existing sites that the RDAs currently own can be
then transferred to local partners at market value. One example
of that is in Gloucester, where we have worked with the RDA and
the local authorities to transfer assets in what we are calling
a balanced package, where the income from the assets supports
the development of some of those assets that need investment moving
forward. The stewardship model is really a way of working with
local partners to deliver on the economic outcomes but also over
time to dispose of the assets when the time is right, when the
market might be right, but more importantly to really deliver
the economic outcome.
Q338 James Morris:
Is there any particular reason why the asset should not just
be directly transferred to the local enterprise partnerships?
Is not the role of your organisation just merely adding a level
of bureaucratic oversight that is unnecessary?
Pat Richie: Over
the period of the development of the stewardship model that is
an option for local enterprise partnerships. Should they be able
to acquire the assets at market value and be able then to deliver
those assets, then that is an option that we would look at through
the stewardship model. For example, the local authority in Newcastle
on Tyne purchased the former Newcastle Brewery site, which was
jointly owned by the RDA, the University and the city council,
and the city council have purchased the RDA's interest in order
to bring forward the regeneration of that part of the city. The
stewardship model, in effect, captures the asset through the HCA
so that we can then work with the local enterprise partnerships
or groupings of local authorities to then deliver on particularly
the business and job outcomes that the RDA assets were designed
to achieve.
Q339 James Morris:
You have talked a lot about working with local authorities and
public sector organisations. What about the private sector?
What role do you perceive them to have in developing these assets?
Pat Richie: Ultimately
we look for the private sector investment to come in to take the
development of the assets forward, but prior to that, in most
places where we have been looking at how the stewardship model
will work, they will link to private sector-led local enterprise
partnerships, so they will sit within the responsibility of the
LEP to develop the local strategy, and that includes local councils
working alongside often private sector-chaired boards.
Richard Hill: It
is worth just adding that what we are doing in terms of our own
land at the moment, in terms of trying to encourage private sector
investment, is we set out in our disposal strategy how we want
to use that land to promote development—not to add to people's
land banks but to see activity. The structure of the deal essentially
is, the objectives are set by the local planning system and by
the local authority—that is not a topdown process,
it is a locally driven process. We think we can attract private
sector investment by derisking to add certainty, providing
some certainty in terms of planning, perhaps going to outline
planning, thinking about demolition on the site, if that is necessary,
potentially the provision of some limited amount of infrastructure,
but looking to the private sector to come in to take the sales
and commercial risk and do what they do best. The financial structure
of the deal, as I was saying earlier, is potentially to allow
the cash flow of the scheme to work with us recovering the receipt
on sale and structuring an overage deal, so if that is better
than expected there is some return to the public sector as well
as sharing with the private sector to recognise the amount of
risk. That is the model we are establishing, but it already does
work.
We have a scheme, Severalls in Colchester: we have
done an extension road off the A12. The local authorities borrowed
to help fund that road. The site is now going to a private sector
developer to build out the site. Essex County Council take the
priority return to recognise their investment, because they borrowed
against the scheme. There is then an overage deal where some
investment comes to us. You can get private sector activity if
you structure the deal in that way, and that is what we are doing
on our own land, and that is broadly what we would expect to do
on other public sector land if we were asked to.
Q340 Chair: Coming
back to the point, like James, I was struggling a bit with this
term "stewardship". I had not heard it before. It
seemed to imply in the end you wanted market value for the land,
but isn't one of the problems at present that the private sector
has got difficult problems. It is probably not going to take
all the risks, so the one in Essex might work, and I would probably
suggest there is quite a lot around the country that are not getting
off the ground. Why can't you take an element of the risk and
say, "Okay, let's have an asset-backed vehicle, we will put
our land in and if it works we get something out of it; if it
does not, we do not." Whatever you are trying to say, we
have to have market value. Are you not constraining what is going
to happen and maybe stop these schemes altogether?
Richard Hill: I
think we are not saying that we will always take a view of obtaining
maximum market value on a scheme. We are looking to achieve the
value consistent with the agreed use of the site with the local
authority.
Q341 Chair:
What is the difference?
Richard Hill:
If the local authority has particular priorities for its site,
whether they are housing or retail—
Q342 Chair: Then
it is the market value that you agree with the local authority.
Richard Hill: That
is right, but that is not seeking to secure always maximum market
value.
Q343 Chair: No,
but it is still market value, isn't it, and it is still not taking
the risk.
Richard Hill:
And in that context we can structure both finance and potentially
the vehicle, so there is a risk-sharing approach on that land.
Clearly, we have to work within the guidelines that we are given
by Treasury and others to ensure value for the public purse from
those investments.
Q344 Chair: Are
you restricted, then, in not being able to do the sort of arrangement
that I suggested by Treasury?
Richard Hill: It
would depend on, I think, the detail of what you were proposing.
We clearly have to work within the framework that Treasury gives
us, but that does give us some flexibility to do things for different
uses and to structure vehicles in different ways, and potentially
to put the land into asset-backed vehicles if that was something
we wanted to do.
Pat Richie: I
think linked to that we would need to go through as we do an economic
appraisal with Treasury to ensure that any investment delivers
on a range of economic outcomes, particularly in the RDA assets,
where in a number of cases, if not the majority, they are subject
to development agreements. They are part of joint, broader regeneration
strategies where there has already been a tradeoff, I think,
in terms of the return from a market return compared with the
economic outcomes in terms of jobs and investment in a place.
That would normally be worked through as part of any economic
appraisal and value-for-money work that we would do on looking
at options.
In a number of areas we have taken significant risks.
For example, we are landowners in a number of the large northern
cities, where we have looked at restructuring proposals. For
example, in Liverpool we own land adjacent to the conference centre.
We have looked at ways in which we can use that land more flexibly
to support the extension of the conference centre in order to
create jobs and take a deferred or a lower return depending on
the tradeoff in relation to the achievements of the investment,
but that would be worked through through the option and economic
appraisals.
Q345 Mark Pawsey:
You have introduced the concept of market reality and market value.
Isn't it the case that market values now are much lower than
they were before, and if the land is worth rather less, the projects
should be able to go ahead, because the land is then cheaper—is
in at lower value. Or are you being held back by the fact that
you are having to work with the historic value and the values
that land was acquired at?
Pat Richie: Some
of the land in our disposal strategy was acquired at a particular
time in the market.
Q346 Mark Pawsey:
At high prices.
Pat Richie: At
high prices.
Q347 Mark Pawsey:
And is not reality that those times have gone, values are lower
now and you just have to accept that?
Pat Richie: We
do accept that, and we are working through that as part of the
way in which we have structured deals, for example on our public
land initiative and a range of the work that we have done with
our development partner panel. But at some stage, if there is
an upturn and the market comes back and there are greater returns
to be made in later phases of the site, we would normally structure
an overage deal so that the public purse gets some return on taking
the risk on that investment.
Q348 Mark Pawsey:
But isn't it better to take the hit and have things happen than
to sit and wait for the market to come back up again?
Pat Richie: It
is a balance, I think, and it depends on different propositions.
Richard Hill: Certainly
over the last two years we have taken write-downs on our books
in terms of land, so we are confident now that the land in our
books represents the real value. When we have looked at the sites
we have taken for disposal, we have done that on the basis that
those are viable sites where housing can go ahead; it would not
be sensible to do anything else.
I think there is a slightly separate question, though.
There are a number of developers who still have land on their
books at historic prices. Clearly that is a drag on investment
if they want to recover those values. There is clearly a balance
between what can be done on our land and what can be done on privately
owned land.
Q349 Steve Rotheram:
Despite the apparent constraints that you identified in the previous
question, what single recommendation would you make to this Committee
about the best way to sustain regeneration in these economically
challenging times?
Chair: Single, and very
brief, please.
Pat Richie: My
single recommendation I think would be to have a clear long-term
strategy for a place linked to the sort of work we have been doing
in the local investment plans, and to be prepared to then rephase,
prioritise and bend that according to the market and according
to the various different means that there are of delivering that
long-term strategy. But the key important thing is to have a
very clear economically driven strategy that you can then adapt
to both the market conditions and the public sector conditions
that prevail at that time to be able to rephase and prioritise
that according to the conditions, but have a strong, clear focus
on the priorities and the leadership of place.
Chair: Thank you both
very much.
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