Whilst the proposals put forward in this chapter are designed to ensure that a reasonable proportion of the value gained by development is captured for infrastructure, it is clear that “planning gain” – by whatever mechanism it is collected – is highly unlikely to deliver all investment needed for infrastructure and affordable housing. Additional investment, both public and private will also be needed. The
expanded investment role we propose for the HCA (discussed in Chapter 2) will help attract private investment by aggregating opportunities and reducing the costs of finance. It will equally be important to ensure that public sector capital investment is targeted in the most effective way.
Revolving Infrastructure Funds would provide a means of pooling central and local funding to target priorities for infrastructure investment and allow for the initial outlay to be recouped over time and earn a return. They would allow for a long term programme for investment which would help to create certainty for investors and developers and allow for the delivery of a pipeline of infrastructure to support major growth schemes, including new homes.
There are a number of examples of Government and local authorities using revolving infrastructure funds as a means to unlock developable land by paying the upfront costs of infrastructure, which is then repaid either by selling the land to a third party for development or by sharing in the proceeds of the development itself121. The Local Growth Fund has made tentative steps towards pooling funding at local level. The Growing Places Fund is a £739 million revolving fund managed by LEPs. Several of the City Deals have established different forms of revolving investment funds including:
● Greater Manchester councils will invest £1.2 billion up front in infrastructure improvements. In return, the government has committed to allowing a maximum of £30m a year to be ‘earned back’ from the Treasury over a 30 year period which will be reinvested in further infrastructure improvement.
● Greater Norwich’s local infrastructure fund, which will be initially funded through borrowing £20 million from the Public Works Loan Board at a preferential rate. This fund will provide loans to developers for site specific help to enable housing sites to be delivered quickly, managed on a revolving basis. The fund will be repaid over a 20 year period. Over 2200 homes and 1000 jobs stand to be created from funding three of the priority schemes in the City Deal agreement.
120 NAO (2013) The New Homes Bonus. London: NAO.
● The Preston, South Ribble and Lancashire City Deal includes a £334 million Infrastructure Delivery Programme funded through pooled local and national resources. This includes Department for Transport Local Major Transport Scheme funding and the investment of receipts from land sales from the HCA. Local partners have committed investment via the New Homes Bonus, Business Rates, land receipts and mainstream capital programmes. The programme will act as a catalyst for commercial and housing development and is expected to leverage £2.3 billion of commercial investment through the construction of up to 17,420 net new homes.
In essence, all of these revolving funds reflect four fundamental principles:
● their initial funding is underpinned by councils using the strength of their balance sheets, whether through prudential borrowing or use of reserves;
● the assurance that the returns on investment can be recycled to the local area makes the assumption of greater risk a more viable proposition for local partners;
● by pooling local and central funding, the opportunities to generate more revenue are maximised, for example by earning interest and leveraging other sources of investment;
● funding a long-term economic strategy with agreed outcomes enables local partners to be more agile in responding to new opportunities and changing market conditions – in short, to operate like any good business.
We recommend that Revolving Infrastructure Funds based on these key principles should be a central part of the offer to local authorities and New Homes Corporations, which we go on to discuss in the next chapter.
Recommendation 22: Revolving Infrastructure Funds
Create a programme of Revolving Infrastructure Funds pooling central and local funding for infrastructure and ensuring receipts are retained and recycled to forward fund infrastructure and support large scale housing development schemes. These will be a key part of the offer to local authorities and New Homes Corporations to support major housing growth.
People recognise the need for new homes, but are understandably concerned about the social, environmental and amenity costs that new development has on their communities, particularly loss of visual amenity, access to open space, increased demand on services and transport infrastructure. Under our current system these tensions are too often played out reactively through the planning system. The recommendations of this review are designed to give communities greater ability to ensure the homes they need are delivered and to shape the places in which they live.
Our proposals are for a stronger role for local authorities in land assembly and a collaborative approach to the way development is planned and delivered to provide a better means of linking developments to the aspirations of communities and to tackle the problems that bedevil many development schemes in the UK. This will give councils the means, on behalf of their communities, to act as lead developers to shape places and deliver the homes they need. It will empower communities with greater control over the speed of development and the design and quality of schemes. It will give them the ability to specify a greater mix of tenures and attract a wider range of house builders into the market.
To work effectively this approach must be based on development of long term effective partnerships with a range of players across the industry including landowners, house builders, the construction industry, Housing Associations and investors. As highlighted in a number of recent reports122 and many submissions to the review, there are many outstanding examples of what can be achieved through