The regeneration agenda is disappearing before our eyes. With crippling public sector cuts looming, Kurt Jacobs asks: is there a future for public-private partnership?
Is regeneration really off the agenda? The centres of most Yorkshire towns and cities have been extensively renewed, revamped and revitalised over the past decade, thanks largely to the public and private sectors working almost seamlessly together to turn grey, grim urban areas into shiny glass and steel wealth creators.
But that sweeping programme has slowed drastically as the debt finance stream has dwindled and changing government priorities have diverted public funds to new priorities. The mothballing of retail-led regeneration projects such as the Eastgate Quarters in Leeds, Westfield Broadway in Bradford and Sevenstone in Sheffield shows just how quickly private sector funding can evaporate. Only last month Westfield reiterated that it wouldn’t be starting on any new developments in the UK this year, after posting losses of £261.6m in 2009. The loss was caused by property valuation writedowns, butWestfield has at least seen losses drop from the high of £1.25bn in 2008.
There are concerns that regeneration in Yorkshire may slow even further as the next government – of whatever persuasion – drastically reduces public spending; and especially that a Conservative-led administration will carry out its pledge to scrap regional development agency Yorkshire Forward, a big force in regeneration.
Jan Anderson, director of environment at Yorkshire Forward, says that the regeneration agenda is “disappearing rapidly” as central government priorities switch to jobs, businesses and particularly housing. She adds: “In the current climate, and perhaps rightly so, the government has focused on the housing agenda, but that emphasis appears to be at the exclusion of other elements of regeneration, such as mixed-use developments, retail, offices and roads. Without those you don’t get sustainable regeneration or place-making.
“My concern is that the broader regeneration agenda has gone out of the window, and no-one is flying its flag. It takes 20 to 25 years to really transform a place, and I’m concerned that financially we’re turning the tap off. It’s tragic, really. I’m concerned that, unless some developments go ahead, some places will find themselves falling down the ladder; and that when the economy picks up the private sector’s interest will be in places that are safe bets rather than those that really need investment.”
If private sector investment does not return soon, and central government reduces investment in the region, what is the outlook for regeneration in Yorkshire?
Philip Ryan, chairman of developer JF Finnegan in Sheffield, says: “I have been worried for a while that the public sector money would run out before private sector kicks in again. There will be huge cuts in the public sector, no matter what party wins the general election. In terms of funding it will be a long time before the banks have the confidence to go back in the way they did before.”
Ben Morely, deputy director for regeneration in Creative Sheffield, the city’s development company, adds: “Times are going to be difficult compared with the past ten years. Money will not completely dry up, but we need to make sure the projects that are up and running carry on and that we prioritise the schemes that will have the biggest impact. We’re going to have to be strict about return on investment.”
Many councils in Yorkshire have decided to carry the cost of some regeneration projects by themselves.
In Sheffield the city council has taken advantage of lower property values by buying, rather than renting, the Electric Works on the city’s Digital Campus to create office accommodation for creative, digital and media businesses.
Morley adds: “The council has also been able to borrow £17m to build a new indoor market on the Moor and maintain some momentum in the city centre that might otherwise disappear. And a further £10m is available to secure property within the flagship New Retail Quarter to ensure it is ready to start as the economy improves. This will be repaid but the action needs to be now to protect the opportunity and take advantage of cheaper property prices.”
In Bradford the council and Yorkshire Forward have picked up the £24m bill to regenerate City Park, the public space that will be at the heart of a proposed commercial district of up to 600,000 sq ft.
Mike Cowlam, Bradford’s assistant director of economic development services, says: “Because the private sector has found it hard to invest, the public sector has had to step up to the mark. We already use funding from future growth to invest in new schemes. It’s essential for cities to draw down public spend now, and help the private sector to create long-term jobs. For example, we have a £6m public loan to the development that’s bringing 600 jobs to the city when Provident Finance relocates here.”
City Park is a case where the council and Yorkshire Forward have “led from the front” to stimulate growth in creating a public space. “Strong leadership and investment from the public sector now will create investment in the future,” says Cowlam.
The other area of established public funding that regeneration projects in Yorkshire are looking to is that old standby euro cash. South and West Yorkshire are receiving £400m from the European Regional Development Fund Programme (ERDF), which will run until 2013. The ERDF’s coffers are surprisingly full, even though match funding needed to access the programme has been in scarce supply since it was launched in 2007.
New forms of funding are also emerging, which may help to keep Yorkshire’s regeneration engine lubricated. Tax incremental funding (TIF) or ADZ (accelerated development zone) is an idea from the US and is being seriously considered by the Treasury. It allows councils to pay for projects through projected increases in business rates. Sheffield, among other authorities, is looking at whether TIF could be a way of accessing future development funding.
David Codling, regeneration director at property agency CB Richard Ellis in Leeds, says: “TIF is a public sector financing model used in the US. It’s the main form of local public sector financing of capital projects. TIF ring fences increases in taxes – business rates in our case – and uses that as an income stream to fund investment. Say, a council builds a new road to a regeneration site, buildings on that site will generate increased rates and that increase can be used to pay back a government loan.”
Another potential source of funding is JESSICA, the Joint European Support for Sustainable Investment in City Areas. The initiative between the European Commission and European Investment Bank allows public bodies to take equity loans and guarantees from private financiers to fund urban development, particularly social housing. It allows authorities to take out eurocash funding and put it into a revolving fund that recycles receipts.
Codling is still optimistic about private sector funding of regeneration in Yorkshire. He argues that the market will find reasons for investing in the region – it will just have to be a little more selective about what it builds and where it looks.
“Nothing has fundamentally gone wrong with the Yorkshire economy. High levels of debt finance have not been available since early 2008 but it’s a temporary issue,” he says. “We just have to be patient and wait for the financial markets to return. Developers always look at fundamentals of demand and supply, and look for the opportunities. There’s a dearth of quality housing in Yorkshire, particularly for families. Even the temporary glut of city centre developments will be soaked up eventually. If there’s an unmet demand for, say, retail in less obvious locations such as Halifax, then it may be a better bet than a major city like Leeds where there’s an oversupply. Harrogate, for instance, will always be a safe bet for housing and retail development because there’s a lack of supply but great demand.”
Anderson goes as far as to argue that there may be some positives in the funding crisis. If the public sector has to look again at its finances, perhaps it should also look again at what it needs to fund.
“We need to review and think creatively. Do we really need another office block there or should it be a public square? Do we need another big retail development or is there something more original we can do with a space?” asks Anderson.
What may stymie regeneration in smaller towns is the possible scrapping of regional development agencies if the Tories win power, although leader David Cameron has recently played down talk of immediately getting rid of the agencies should he get to No 10. While the region’s main cities have larger planning and development departments, as well as bigger budgets, to work with developers, smaller authorities have often been reliant on Yorkshire Forward for expertise and leverage so they can get regeneration projects under way.
As to what constitutes a safe bet, Ryan says that developers will have to become more creative in the way that they finance regeneration projects. He cites a remediation project that his company is involved with at Swallow Nest, outside Sheffield, which involves extracting coal from an open cast mine before starting on development work proper.
Ryan also believes that developers will look to quality projects rather than cutting costs. “If you build quality projects it will always sell, even in a downturn,” he says. “You may not get the kind of returns you expected but it will sell.
“Admittedly it will be a long time before the banks have the confidence to go back into development in the way they did. However, there are other sources of funding, such as pension funds, which still have to invest. Property may be a bit riskier, but a return for 5.5 per cent per year on your money is far better than keeping it in a bank.”
Also in: March 2010
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