Urban renewal faces a lost decade because of the credit crunch unless solutions are found within the next few months, a major conference heard last week. Michael Burton, who chaired the event, reports on some of the answers offered by its keynote speakers
Sir Bob Kerslake’s legendary capacity for putting in the hours will be standing him good stead over the next few months as he grapples with the launch of a new, multi-billion pound housing and regeneration quango during the worst recession in decades.
When details of the Homes and Communities Agency (HCA) were being formulated, the sub-prime crisis in the US was merely a blip. By the time legislation creating the agency was making its way through Parliament, the housing market was in obvious decline. But between Royal Assent in July and the official launch of the HCA on 1 December, the period of sustained prosperity we all assumed was a natural right suddenly became history.
Sir Bob fully agrees that the credit crunch, and its unique impact on the housing and regeneration sectors, dominates both his role and that of the new agency he heads up as chief executive.
As keynote speaker at last week’s one-day MJ/NSA conference ‘Housing, regeneration and the credit crunch’, he admitted that his speech would have been quite different but for the economic scenario.
Now, in its first few weeks, the HCA has to deal with collapsed housing and regeneration projects, a funding crisis, rising homelessness and possible bankruptcies among housing associations. Sir Bob did not seek to underestimate the challenges and nor, indeed, did any of his fellow conference speakers. As he noted in regard to the stalled regeneration projects: ‘We might see a lost decade in urban renewal, if we don’t find solutions in the next year.’
The speakers, from both public and private sectors, set out to provide solutions to the problems. But several key strands emerged during the course of the day and during the discussion.
One was that while all agreed the core problem was lack of funding, ways of filling the gap were more mixed. There was disagreement over whether councils could or should get into the mortgage market, or even whether they were experienced enough to do so. It was also clear that despite exhortations to use wellbeing powers and prudential borrowing, there were still concerns over legality and fears that, down the line, councils could find themselves in the courts for overstepping their remit.
Although ministers have urged local authorities to use their wellbeing powers, there is still too much legal uncertainty, and there were suggestions that the Government should introduce emergency regulations to clarify the rules. But then, as one delegate commented: ‘The Government is consistently behind events on this.’
Ian Doolittle, head of public sector, Trowers & Hamlins, agreed there was ‘too much caution’ as regards prudential borrowing, and a fear of being deemed ‘imprudent’, paradoxically caused by uncertainty over the limits to such borrowing.
However, he said the wellbeing powers were ‘great in theory but still with a lot of uncertainties’. He suggested reducing legal uncertainties through a Housing and Regeneration (Special Measures) Act 2009.
There was also lively discussion over land – whether councils should be in the market for buying up fallow building land through compulsory purchase or, indeed, be selling off their own land when prices were low.
One delegate said: ‘Sainsbury’s doesn’t buy land for housing because it doesn’t build homes – but then, nor do councils.’
Another commented: ‘We need a functioning private sector, and if councils buy up the land, then there won’t be one.’ Yet another added: ‘There is plenty of land in the state’s hands already.’
And there was concern over the deteriorating finances of housing association projects, with cross-subsidies from shared ownership and private sales hit by the collapse in the market.
One delegate commented: ‘Without subsidies, or increases in grants, rents alone will not cover the cost of development.’ Another warned of some 20 housing associations facing bankruptcy as a result.
All, however, agreed that the demand for housing remained as strong as before. Sir Bob commented: ‘Don’t be deluded that we can revise downwards forecasts for housing growth.’
The recession means that the models must change, with more intermediate, private rented housing, and less of the stark alternatives of either social rented or owner-occupation.
There was concern that Section 106 agreements were no longer relevant because of the private sector collapse, and that a replacement must be found for the exit of cross-subsidies from private sector sales in housing association projects.
In his address, Sir Bob said the crisis inevitably dominated the work of the HCA, and that internal organisational issues – the merging of the Housing Corporation and English Partnerships – took a secondary role.
Only the previous day – 10 December – the HCA had written to all major RSLs and developers outlining how it and they could work together. In particular, the HCA wants to fill the gap left by the fall in Section 106 benefits and loss of cross-subsidies to RSLs, on the understanding that this would be an investment with an expected return in the future. It has set a target of next March to conclude such arrangements with its key development partners.
Another speaker, Shelter chief executive, Adam Sampson, believed the demand for housing would eventually force a recovery in the market.
He also thought it ‘glorious’ that local authorities would take a more active role, and that housing was now high up the political agenda. But he was sceptical about the idea of councils getting into the mortgage market, believing they lacked the necessary skills.
However, John Stewart, director of economic affairs at the Home Builders Federation, said there was greater appetite among his members for partnerships with councils.
He, too, warned against any assumption of a drop in future demand for housing, even though current housing completions were at their lowest since 1923. As he said: ‘People haven’t gone away just because of the credit crunch. It’s dangerous to say demand will fall, long term.’
Michael Ward, head of the British Urban Regeneration Association and a former chief of the London Development Agency, said the problem for the Government was that ‘the situation is moving faster than official statistics’. He added that ‘the model is broken and needs to be fixed’.
Among his answers were more direct provision from councils and a move away from reliance on Section 106 agreements which were currently ‘irrelevant’ because of the private sector slump.
Stephen Hughes, chief executive of Birmingham City Council, said his authority was already active in dealing with the housing credit crunch. It was looking at entering the mortgage market, and providing funding for ‘viable’ schemes through a ‘Bank of Birmingham’, by buying assets and then arranging lease-back as a ‘reverse PFI’.
Cllr Margaret Eaton, LGA chair, called on the Government to allocate £1.5bn to plug the gap between house prices and mortgage availability which, she believed, would help ‘about one-quarter of first-time buyers’.
Like the other speakers, she warned that housing demand would not vanish just because of the credit crunch, predicting that 10% of the population would be on the housing waiting list in England by 2010.
When details of the Homes and Communities Agency (HCA) were being formulated, the sub-prime crisis in the US was merely a blip. By the time legislation creating the agency was making its way through Parliament, the housing market was in obvious decline. But between Royal Assent in July and the official launch of the HCA on 1 December, the period of sustained prosperity we all assumed was a natural right suddenly became history.
Sir Bob fully agrees that the credit crunch, and its unique impact on the housing and regeneration sectors, dominates both his role and that of the new agency he heads up as chief executive.
As keynote speaker at last week’s one-day MJ/NSA conference ‘Housing, regeneration and the credit crunch’, he admitted that his speech would have been quite different but for the economic scenario.
Now, in its first few weeks, the HCA has to deal with collapsed housing and regeneration projects, a funding crisis, rising homelessness and possible bankruptcies among housing associations. Sir Bob did not seek to underestimate the challenges and nor, indeed, did any of his fellow conference speakers. As he noted in regard to the stalled regeneration projects: ‘We might see a lost decade in urban renewal, if we don’t find solutions in the next year.’
The speakers, from both public and private sectors, set out to provide solutions to the problems. But several key strands emerged during the course of the day and during the discussion.
One was that while all agreed the core problem was lack of funding, ways of filling the gap were more mixed. There was disagreement over whether councils could or should get into the mortgage market, or even whether they were experienced enough to do so. It was also clear that despite exhortations to use wellbeing powers and prudential borrowing, there were still concerns over legality and fears that, down the line, councils could find themselves in the courts for overstepping their remit.
Although ministers have urged local authorities to use their wellbeing powers, there is still too much legal uncertainty, and there were suggestions that the Government should introduce emergency regulations to clarify the rules. But then, as one delegate commented: ‘The Government is consistently behind events on this.’
Ian Doolittle, head of public sector, Trowers & Hamlins, agreed there was ‘too much caution’ as regards prudential borrowing, and a fear of being deemed ‘imprudent’, paradoxically caused by uncertainty over the limits to such borrowing.
However, he said the wellbeing powers were ‘great in theory but still with a lot of uncertainties’. He suggested reducing legal uncertainties through a Housing and Regeneration (Special Measures) Act 2009.
There was also lively discussion over land – whether councils should be in the market for buying up fallow building land through compulsory purchase or, indeed, be selling off their own land when prices were low.
One delegate said: ‘Sainsbury’s doesn’t buy land for housing because it doesn’t build homes – but then, nor do councils.’
Another commented: ‘We need a functioning private sector, and if councils buy up the land, then there won’t be one.’ Yet another added: ‘There is plenty of land in the state’s hands already.’
And there was concern over the deteriorating finances of housing association projects, with cross-subsidies from shared ownership and private sales hit by the collapse in the market.
One delegate commented: ‘Without subsidies, or increases in grants, rents alone will not cover the cost of development.’ Another warned of some 20 housing associations facing bankruptcy as a result.
All, however, agreed that the demand for housing remained as strong as before. Sir Bob commented: ‘Don’t be deluded that we can revise downwards forecasts for housing growth.’
The recession means that the models must change, with more intermediate, private rented housing, and less of the stark alternatives of either social rented or owner-occupation.
There was concern that Section 106 agreements were no longer relevant because of the private sector collapse, and that a replacement must be found for the exit of cross-subsidies from private sector sales in housing association projects.
In his address, Sir Bob said the crisis inevitably dominated the work of the HCA, and that internal organisational issues – the merging of the Housing Corporation and English Partnerships – took a secondary role.
Only the previous day – 10 December – the HCA had written to all major RSLs and developers outlining how it and they could work together. In particular, the HCA wants to fill the gap left by the fall in Section 106 benefits and loss of cross-subsidies to RSLs, on the understanding that this would be an investment with an expected return in the future. It has set a target of next March to conclude such arrangements with its key development partners.
Another speaker, Shelter chief executive, Adam Sampson, believed the demand for housing would eventually force a recovery in the market.
He also thought it ‘glorious’ that local authorities would take a more active role, and that housing was now high up the political agenda. But he was sceptical about the idea of councils getting into the mortgage market, believing they lacked the necessary skills.
However, John Stewart, director of economic affairs at the Home Builders Federation, said there was greater appetite among his members for partnerships with councils.
He, too, warned against any assumption of a drop in future demand for housing, even though current housing completions were at their lowest since 1923. As he said: ‘People haven’t gone away just because of the credit crunch. It’s dangerous to say demand will fall, long term.’
Michael Ward, head of the British Urban Regeneration Association and a former chief of the London Development Agency, said the problem for the Government was that ‘the situation is moving faster than official statistics’. He added that ‘the model is broken and needs to be fixed’.
Among his answers were more direct provision from councils and a move away from reliance on Section 106 agreements which were currently ‘irrelevant’ because of the private sector slump.
Stephen Hughes, chief executive of Birmingham City Council, said his authority was already active in dealing with the housing credit crunch. It was looking at entering the mortgage market, and providing funding for ‘viable’ schemes through a ‘Bank of Birmingham’, by buying assets and then arranging lease-back as a ‘reverse PFI’.
Cllr Margaret Eaton, LGA chair, called on the Government to allocate £1.5bn to plug the gap between house prices and mortgage availability which, she believed, would help ‘about one-quarter of first-time buyers’.
Like the other speakers, she warned that housing demand would not vanish just because of the credit crunch, predicting that 10% of the population would be on the housing waiting list in England by 2010.
