Delivering growth in a world of austerity and localism

Alex Plant, Chief Executive

Cambridgeshire Horizons

Content

• About Horizons

• Context – national and local

• The old model dismantled – new model emerging?

• Ownership v rent

• Impact of Localism Bill

• Future funding models

• Conclusions

                                

About Cambridgeshire Horizons

Established in 2004 by local authorities of Cambridgeshire

Company limited by guarantee, no planning powers, reports to Board

Horizons' five core objectives are to:

1. Coordinate development and infrastructure implementation.

2. Overcome barriers to sustainable development.

3. Secure and manage funding for infrastructure.

4. Ensure developments employ high quality sustainable design.

5. Communicate the wider benefits of the planned development

CLG cut all funding from April 2011 – Horizons to close in Sept 2011

Context : National

National debt and deficit focus on cuts

CLG >70% cut in capital, >50% in revenue

Future economic success requires significant

uplift in new homes and infrastructure – esp. in

areas that can deliver private job growth

And huge shortfall in number of homes needed

against number of homes available

Opposition criticism of lack of growth strategy

Not clear we have the right tools for the job…

House building rates falling

Home ownership declining

Tougher to get on first rung of ladder

Year Median LTV ratio for 1st time buyers

2006 92%

2007 92%

2008 84%

2009 75%

2010 75% 

Source : Calculated from data from Mortgages.co.uk and Bank of England

Deposits as %age of income

Deposit as a percent of income, England average for 2000-2009, Based on 15th percentile house price

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

% 16 16 17 22 33 29 31 32 35 64

Source: NHPAU analysis

Fourfold increase in 8 years…

And interest rates likely to rise over coming years….

Context : Local

Cambridgeshire (and Cambridge sub-region in particular) has the right ingredients for

rapid economic growth

One of the UK’s few global brands

Critical cluster for education, R&D, biotech, hi-tech, medical research, advanced

manufacturing, creative industries, cleantech

One of the best skilled workforces in the UK but shortages in technical skills and

competing in global market for best people

Cambridge sub-region can help lead UK recovery: but only if we create the right conditions for a flexible labour market

Confidence in infrastructure delivery is key to continued public and political support for growth

Context : Local

• Massive shortage of homes, especially affordable ones

• Real problems for low-waged workers and about to worsen

• Not a NIMBY problem – unlike some parts of the south and east

• Spatial strategy plans for significant increase in new homes

• Plan for homes/jobs together, linked to public transport

• One New Town, urban infill, fringe extensions, market towns

• A14 suspension creates a problem for major developments

• About to lose Cambridgeshire Horizons as focal point for growth

Local picture on building rates is better than national trends

Recent starts and completions, Cambridgeshire

0

100

200

300

400

500

600

700

800

Q3 2008/9 Q4 2008/9 Q1 2009/10 Q2 2009/10 Q3 2009/10 Q4 2009/10 Q1 2010/11 Q2 2010/11 Q3 2010/11

Notional quarterly completions total Starts on site per quarter

Old model – growth areas

• Housing Growth Fund and unringfenced capital

• Local Delivery Vehicles, RDAs, GOs

• Regional Spatial Strategy

• Social Housing Grant

• Clear support/cajoling from central Government

• Joint planning arrangements (section 101 and section 29 committees)

• Well-funded HCA, able to use capital flexibly

• Local authorities also reasonably well funded

• But growth areas not in receipt of growth dividends

New model ?

• New Homes Bonus

• Community Infrastructure Levy

• Tax Increment Finance

• Relocalisation of business rates

• Making better use of public sector assets

• Feed in tariffs and other innovative finance options

• Regional Growth Fund

• Affordable Rent

• Local Enterprise Partnerships

Time to embrace private rent?

• Shift in mortgage availability is structural not cyclical

• Average age of buying a first home is now nearly 40

• But demand for a roof still going up – expressing itself through more demand for renting

• Which should in turn attract institutional investment in quality rented products (as in Europe)

• And help to redress negative perceptions of private rent

• As “churn” in job market increases, renting may fit better

• Whereas owner-occupation is “sticky”

• Reducing the rate of owner occupation releases capital for more productive purposes

England an outlier on tenure mix

Source: Christine Whitehead, Cambridge Centre for Housing & Planning Research, “Subsidised housing in the twenty first century?” 18 March 2009

Localism: a double-edged sword for growth?

• Localism Bill could allow for good developments to come forward if a neighbourhood supports it, even if their council doesn’t

• But system could become piecemeal and more complex:

“In the Bill as drafted, the lack of a coherent strategic planning system combined with the complexity of the neighbourhood planning system may hinder the achievement of the Government’s key objectives of economic recovery” (RTPI)

“The Bill will definitely not encourage more affordable housing because many local residents in more affluent areas will not include very much affordable housing in their own plans for fear of bringing down the value of their own homes” (Highbury Group)

Delivering Future Growth : Funding

• At present viability is problematic and up-front investment hard to find

• Transport is biggest cost and taxpayer funded schemes will be fewer

• Also high up-front costs for (much-needed) low-carbon infrastructure

• Answers must lie in further devolution of funding to local level and allowing sensible borrowing against future revenue streams

• If Local Authorities are able to securitise future business rates, ground rents, feed-in-tariffs, CIL, New Homes Bonus etc., this could solve the front funding problem, lead to higher quality development, and foster a more positive approach to growth in local communities

• But excessive HMT concern over public sector debt could stifle this

Delivering Future Growth : Structures

• Two-tier local government is a barrier

• Need to align transport and planning – TfL-style models should become the norm, especially for growing cities (and not just the metropolitan cities)

• Need systems for pooling revenues/assets across administrative boundaries

• Loss of RSS is a risk – authorities need to come together voluntarily to set out integrated approaches to growth, transport and infrastructure delivery

• Local Enterprise Partnerships could be part of the answer to the vacuum left by RSS abolition, and could help fill the implementation gap left by loss of Local Delivery Vehicles….

• …..but LEPs are currently neither empowered nor funded sufficiently to play the role they probably need to

Conclusions

• Rapid dismantling of existing structures/funding is a risk to delivery

• Social housing reforms could see low-wage workers priced out of high-cost areas and so put a brake on economic growth in key places

• Localism Bill could hamper economic and housing growth

• LEPs need powers & cash to counter NIMBY risk in localism

• Private rent market should expand, more affordable/flexible than ownership but needs institutional investment to enhance quality

• Local control over revenue streams is key. Govt must deliver on business rates/TIFs to help close the funding gap. Local authorities must be bold in using these and other tools to support growth