Urban regeneration – Making progress in challenging times
Delivering major regeneration programmes that improve people’s lives has recently felt a bit like working in a tumble dryer. Whether it’s spooked markets and spiking inflation or the arrival & subsequent departure of investment zones, the sheer number of variables in play is having a real impact on progress and delivery.
We’re faced with a unique set of challenges
It’s clear the nation faces a unique set of challenges. Whether that’s the state of public finances, changing working patterns, the cost-of-living crisis, the need to de-carbonise or simply good old-fashioned recessionary headwinds – it’s not the environment anyone would choose in which to plan and deliver positive placemaking change. However, government and public sector bodies seeking to deliver change must persevere, avoiding panicked reactions or short-termism that undermines long-term progress, in the journey to boost people’s social and economic prospects.
More than ever, the big questions still need to be asked, and clear thinking and strategy are required to move the country forward. The road to betterment isn’t paved with flip-flopping or reactive interventions. Just as we advise our clients on major programmes and projects, there needs to be an agreement on the outcomes we’re seeking and a clear plan to get there.
Working in isolation won’t bring about change
Government alone won’t get this right; the way ahead needs to be navigated with expertise and experience from across the country, bringing together the best minds from the public and private sectors. A great example of serious work in this space is Core Cities’ & Royal Society for Arts’ UK Urban Futures Commission, whose work to unlock the potential of the UK’s major cities launched earlier this year. Both organisations bring an excellent track record of evidence-based research and have turned their collective attention to the long-term success of our cities. Importantly, the Core Cities’ city regions account for just over a quarter of the UK’s economic output, so they are fundamental to the future prosperity and wellbeing of the nation.
With input from leading practitioners, including Avison Young, think tanks, civic leaders, social enterprises, investors and wider stakeholders, the commission is focussing on key questions, including,
1) The future role of cities (for their citizens) and relationship with their hinterlands; and
2) Funding and financing; needed to support delivery.
Opportunities to improve outcomes
The commission has begun to explore a range of issues, including barriers around funding and financing that are holding back progress across the UK. Work will progress through 2023, with detailed findings due to be published in September 2023.
Some initial reflections and observations by Avison Young around funding and finance, which are common to our work with clients across the public and private sectors, include:
A) It’s usually a funding issue; Funding and financing are terms that are often bandied about interchangeably and used incorrectly. Financing, while recently becoming more expensive due to increasing base rates and risk pricing, is not usually the main problem. The money is out there on terms we understand. Indeed, we’re increasingly seeing institutional investors seeking opportunities to deploy capital that will not only provide a financial return but also enhance a place and the lives of the people who live in it. For example, in May, L&G and the West Midlands Combined Authority announced a partnership for a £4bn, seven-year investment commitment.
The issue in city development is more typically that projects or programmes are not financeable – they either have underlying viability issues, or there is simply insufficient access to income streams (funding) to service the finance package needed. What we need is the development of more investible propositions and programmes.
What could be done to improve funding?
1) Better alignment and certainty of funding; Funding needs to be deployed in a manner consistent with policy objectives and provided in a way that allows cities and stakeholders to make impactful investments that private finance can support. It should be underpinned by long-term strategic investment plans for places (that influence resource allocation) and funding commitments that come with multi-year certainty. As well as getting more money to the programmes and projects that will deliver the best outcomes, it also allows places to use increased funding certainty to leverage more private finance into delivery.
2) Devolution and risk; We know that public sector funding is under incredible pressure, but the ability to hypothecate future income and savings provides a way to create new funding streams that would service finance and accelerate investment. If cities are going to be responsible and accountable for their own destinies, more devolution (and implicitly ability to take risks locally) will be key. This has been dabbled with to date, but been impactful, with Enterprise Zones in England (e.g., Birmingham City centre, Sheffield Heart of the City II, Science Vale) and, interestingly north of the border, where Scottish Future’s Trust has pioneered the Growth Accelerator Model. These examples have pushed boundaries but remain limited in number and, in England, are only based on business rates growth. In a changing world where we want high-value jobs, a flawed property tax may not be the best proxy for capturing economic and social value created. We need to explore the use of value capture mechanisms that better align to the outcomes being sought. It would make it easier to secure finance – public and private – into major projects and programmes.
B) Address the capacity & capability gap; We’ve all witnessed the erosion of resources and experience within the public sector. The remaining pool of experienced public sector officers who design, deliver and manage public-private delivery arrangements face growing pressures on their time. This capacity and capability gap manifests in many ways, including slow delivery, increased cost, soft deals & poor value for money, and opportunities missed. It needs urgent attention. Alongside improving funding and financing flows locally (as per above), we also need a credible plan to make sure local delivery and risk management capability is fit for purpose. Advisors like Avison Young play an important role here, shaping great deals that align public and private sector investment, but we add the most value when working with an effective client function.
C) Act now to maintain momentum; As we’re hit by economic headwinds, there is also a need for focus, agility and prioritisation to maintain momentum. If, for example, we think about the impact that building cost inflation has (and is) having on the ability to deliver projects – we risk spreading available resources so thinly that short-term delivery and investment stalls. While improved approaches to funding and financing in the longer term are being explored, we need to triage current programmes and projects. It will mean some difficult short-term decisions, but it is vital to maintain current delivery momentum and position cities for future growth and investment.
These are a few initial reflections on the UK Urban Futures Commission and the challenges around better aligning private capital with the public need, to scale up the quantum of investment and level of outcomes delivered. Avison Young will continue to support this vital commission and work with others to accelerate the delivery of positive change and impacts across the country. Urban regeneration should be exciting, and bringing together experience and ideas from across the country to tackle the unique challenges we currently face is a step forward!
