Core City Deals – And Planning’s role in the Battle for Growth & Regeneration
The last couple of weeks have been dominated for me by the strange dancing between the core cities and Cabinet Office as they try to piece together the new ‘City Deals’ announced in the Government’s ‘Unlocking Growth in Cities’ paper.
This process is fascinating on many levels.
Both the cities and Government seem to want to avoid the cities collaborating too much during this process. The cities because they think they can gain some kind of competitive advantage over each other and the Government because they want to be able to display localism at work through tailored solutions for each city and avoid the cities as a group setting the policy agenda.
It’s interesting that the Government has started with the core cities (Manchester, Liverpool, Newcastle, Nottingham, Leeds, Sheffield, Birmingham, Bristol) when cutting these deals, rather than with the places with a consistent track record for growth like Cambridge, Milton Keynes, York and Reading as identified in the recent Centre for Cities report.
Of course the core cities are bigger and probably have the greater capacity to impact the overall UK growth rate and well as having the physical capacity to grow sustainably through the development of inner urban brown field sites (likely to be favoured by a brownfield first policy in the NPPF) and at the same have the greatest potential to positively impact unemployment.
There seems to be a growing policy divergence between Government and the core cities although both have their reasons for trying to hide this. In particular the core cities recognise the importance of urban regeneration (of deprived neighbourhoods) and urban renaissance (starting from the city centres). Both of these are critical to their success as places and are also politically important. Large proportions of the core city population live close to, or in, neighbourhoods in need of regeneration and city centre vibrancy is a key indicator of economic success.
The outcome of the Government’s NPPF considerations will be important to cities ability to grow their city centres by resisting urban sprawl imposed beyond their borders by neighbouring authorities, a theme Richard Rogers returned to eloquently in the Financial Times last week. The Government on the other hand has been setting up financial mechanisms which overall tend to move public finance to more prosperous areas with higher land values and rates of development (New Homes Bonus, Community Infrastructure Levy, Tax Increment Finance etc).
These City Deal discussions bring together a number of related themes including regeneration, planning, unemployment and housing delivery as well as wider issues around budget responsibility for functions like transport, welfare to work and broadband delivery.
Some of the city asks seem to go directly against Government policy with suggestions to bring back strategic planning, albeit at the LEP (usually city region) level, and a substantial appetite for significant regeneration funding through tools like TIF and JESSICA.
As the discussions move into the detailed phase it is clear that some cities and much of Government just don’t have the capacity for radical innovation or detailed policy development in some of these areas.
There is talk of asset backed vehicles despite the fact that property market funding conditions mean that these are probably one of the worst ways to seek private investment at the moment. The RICS and Local Partnerships have just published a review of the track record of public private property partnerships (PPPP)/asset backed vehicles (apparently not yet available on line) and reading between the lines it is clear that it is now almost impossible to secure institutional equity investment or development debt for vehicles like these at present despite the successes of a number of them including isis and Blueprint (please excuse the crass plug) in delivering high quality regeneration through the recession.
Some cities have worked out that using their financial strength to provide guarantees is one of the most powerful ways to secure private investment but in a world where local authority teams are being cut to the bone and consultancy budgets are no more it is clearly difficult for them to drive these kinds of projects through.
Interestingly Scotland, in particular Glasgow, is probably leading in this area of innovation which may be a reflection of the different institutional arrangements there. The major cities in Scotland secured a lot more of the public funding streams (eg housing) a lot earlier than in England and despite the cuts have retained, for now at least, a capacity to use them creatively.
One of the tensions in the cities’ asks is around the role of the Homes and Communities Agency and particularly their stewardship of the economic assets inherited from the RDAs. It seems that no sooner does the HCA survive the attempt by the RDAs to abolish it they now face the same threat from the core cities (London already having been removed). One particular issue is that the former RDA assets were, in a number of cases, to be used as match funding for setting up JESSICA funds. The dislocation caused by the RDA wind up and the apparent loss of institutional memory and resultant delay means that the creation of JESSICA funds prior to the end of the current ERDF programme is now up against 11th hour deadlines. Again Scotland and Wales, and indeed London, where there haven’t been the same problems, have got their JESSICA funds going with less difficulty.
The HCA has also suffered from the cuts and while it used to be the place where some of this innovation would be expected to happen much of that capacity has been lost. Indeed the review of the private rented sector by Adrian Montague is something that was previously being done pretty effectively by the HCA. It will be interesting to see what they say about the current surge in interest in long term public sector RPI linked lease structures for financing market rented housing.
One of the areas that the leading cities are looking very closely at is what in the USA is called Economically Targeted Investment. Over there, public sector pension funds invest a proportion of their assets in their local areas in assets like affordable housing, regeneration and small business venture capital. Generally these investments have been very successful, probably due to a combination of these being under invested areas and the pension funds’ skills and local knowledge. Ironically it is public sector pension funds that are some of the biggest investors in core city infrastructure in the UK but these are the funds from Canada, California and Holland.
The trustees of the UK local authority funds are often at the conservative end of the scale and have a horror of political interference but the funds are generally administered by core city councils. At a time when these funds are seeking long term secure index linked cash flows there could be a marriage made in heaven between the core cities and their ability to guarantee income streams from assets and their own pension funds.
So we are going to have an interesting few weeks in the run up to the budget where we will see the first of the core city deals and, along the way, the NPPF which is rumoured to be heading towards a dropping of the ‘default yes to development’ but also no transition period to allow local authorities to produce plans. We will also see the new build Mortgage Indemnity Guarantee which appears to be rushing headlong towards a solution that discriminates in favour of the large Conservative party funding house builders and against the smaller locally based builders. That feels like it has the potential to be another Bankers Bonus debacle. But more of that in the coming weeks.
