Most people, whether pro- or anti-Brexit, agree that the UK leaving the European Union next year will have at least a short term negative impact on the economy. The question, therefore, is how to prepare; how to put in place measures that will stimulate economic growth.
For many, one of the solutions is to focus on infrastructure and specifically infrastructure that will unlock housing development on brownfield sites in the parts of the country where new homes are needed most. After all, the Office for National Statistics’ latest forecasts predicts that an additional 844,000 new homes will be needed in London alone by 2041. Housebuilding on that scale simply won’t happen without the necessary infrastructure.
"Particularly post-Brexit, when economic growth is going to be vital, infrastructure is going to be the key bedrock for growth,” says Tonia Secker, Real Estate Partner at Trowers & Hamlins. “If you’re going to generate productivity then you need to have people in the right places so they can be productive. From a real estate perspective, residential supply needs to support that. So, we need infrastructure that isn’t just the nuts and bolts in terms of rail and roads, but also the right social infrastructure.”
The good news is that many planning authorities appear to be up for the challenge. According to Chris Plumley, Real Estate Partner at Trowers & Hamlins, public sector clients understand that they need to be proactive when it comes to readying sites for development. “Local government, including the combined authorities, are working tirelessly to bring sites to market and are creating infrastructure in order to do so,” he says.
“Developers have a lot of opportunities to work collaboratively in joint ventures or other forms of partnership to bring development forward.”
"We’ve been talking to chief executives and heads of place and it’s really struck us how buoyant the mood is in the public sector in terms of creating communities and really pushing forward on the property front.”
Of course, infrastructure doesn’t come cheap, but there are a number of options available to both local authorities and private sector developers. For instance, a number of institutional investors, notably Legal & General Real Assets, have announced recently that they are seeking to invest more in infrastructure, in addition to traditional real estate asset classes.
That is certainly the expectation at the vast Old Oak and Park Royal development site in west London. Whereas the state picked up the tab for the infrastructure works required for the Olympic Park in the east of the capital in its entirety. At Old Oak the current understanding is that two thirds of the infrastructure funding needed, will be paid for by the private sector.
However, the right incentives do need to be in place. “Investors will only invest in infrastructure if there’s a return for them further down the line. For example housing, retail or commercial are assets they can sell or from which they can secure a long-term income stream,” says Scott Dorling, Real Estate Partner at Trowers & Hamlins. “It’s about what might facilitate their investment coming on stream.”
An interesting example of how this can work is to be found in Hong Kong, where the MTR Corporation, which is listed on the Hong Kong Stock Exchange, is charged with running the city’s mass transport railway. When a new line is needed, the Government provides the corporation with a licence to develop public land near proposed transport nodes, while the corporation agrees to fund the new line and cap fares. Similarly Transport for London is using their property assets to generate income streams to subsidise their operating costs and reduce fare increases.
Alternatively, forward thinking local authorities in the UK could seek to fund enabling infrastructure themselves. Public bodies can currently borrow at low rates, from the Public Works Loans Board for instance, and can take comfort from the fact that they will be able to repay loans with the additional revenue resulting from the development their investment stimulates.
"If they want to play a placemaking role and put in infrastructure to get a regeneration scheme off the ground or attract match funding, they could easily borrow at very cheap rates,” says Dorling.
"There are some authorities that are borrowing significant amounts knowing that ultimately they will get the commercial, retail and residential on site, although different authorities have very different attitudes to risk and what they deem to be a prudent level of borrowing.”
Finally, both authorities and developers can take advantage of various central government infrastructure funding streams, which are more plentiful than might be expected. The combined authorities, Sport England, Homes England and other, private, entities all have available funding for site infrastructure, focussed at accelerating housing supply and wider developments. “There is a lot of available cash out there,” says Secker. “It’s about how to access it and which are the right pots to go to. It seems to me that a lot of the developer market still doesn’t realise that it’s available. The bigger players do, but often developers think it’s inaccessible or the process just too time consuming and complicated. That’s something we are keen to address.”
It’s clear there are plenty of options in terms of how to fund the infrastructure necessary in order to stimulate growth. What’s required is for both local authorities and developers to think more strategically about which option is most appropriate for which site.