A small section of the 2013 Budget could have a rather large impact on how cities fund urban development projects in the future. Titled ‘Financial Transactions and Contingent Liabilities’, it certainly has not attracted much attention. But, the section sets out the direction the Government is headed in how it funds development projects. In fact, it’s the basis for the investment the Government’s intends to make in the new ‘Help to Buy’ scheme. The headline: Government is now looking to be an investor rather than a donator.
We all know that banks are lending less in the current economic climate. Reduced appetite for risk (as a result of the downturn) means that they are unlikely to re-enter the development market in many areas of the UK without greater certainty about earning future returns. This leaves a major investment gap in UK cities.
On top of that, with public sector net debt set to grow through 2016/17, government has less money to invest. This means we need a new solution to support development in our cities.
Urban Development Funds (UDFs) offer a solution. These funds, traditionally using European Commission monies, allow government to invest in projects that have a good social return — i.e., jobs and regeneration — and allow developers to take on projects that they normally would not alone (through de-risking and co-investment).
UDFs are also a way to make government money worker harder and smarter in a time where resources are scarce. They:
- Leverage public finances to make larger investments with less public money
- Are off balance sheet, so they do not add to public sector debt
- Reduce risks for private investors, increasing the attractiveness of investing in cities across the UK.
The UDF model provides many solutions to the public and private challenges to investment which could impede the growth prospects of UK cities if not overcome. But, we need to improve them.
Today, we launched Developing Interest a report setting out how Urban Development Funds could be improved to create the right opportunities for investing in development in UK cities, especially with Government’s investor mentality. In particular, we set out how they need to be expanded, improved and integrated with current policy.
Expand
The existing UDFs cover around 44 per cent of the UK’s total business stock and less than half of the UK’s cities. And, of the largest cities, Leeds, Bristol, Birmingham and Newcastle do not have access to JESSICA funding. Expanding the coverage of the current UDF programme will also allow all cities to access UDFs to support future investment in their economies.
Improve
Establishing the current UDFs has not always been smooth sailing, due to both internal and external influences. But, there are some great lessons to be learned from those UDFs already in place in the UK. Providing clear governance structures, making UDFs larger to invest more money in cities, allowing flexibility around investment and allocating time and assistance to pipeline development are among the main areas identified in this work to improve the performance of UDFs.
Integrate
Linking UDFs with the current policy agenda can make them worker harder and do more. For example, if UDFs are modified to invest in housing, they could provide the supply-side investment to meet the growing demand that will come from ’Help to Buy.’ They also work well with the Heseltine Single Local Growth Fund. Working together, the UDF and Heseltine Fund could co-invest in projects that support city-region growth, share risk, and invest in projects that will have the greatest impact in cities.
A national UDF programme would be a timely, relevant and smart way for government to invest in urban development when the country needs growth. Learning lessons from those Funds currently in place, expanding their reach and blending them with policy provides a much-needed solution to getting Britain building again.
Leave a comment
Be the first to add a comment.