How regeneration has evolved.

Mon 16 Jun 2008

Residential developers have been involved in regenerating sites for years, in the 1980s, for example, entering into contracts with local authorities and housing associations, under which tenants were decanted and new homes built on local authority owned sites.

Nowadays regeneration schemes, like life, have become much more complex.

The emphasis today is on sustainable development and this is recognised to be at the heart of regeneration and is underpinned by the planning process and by the government's commitment to developing strong, vibrant and sustainable communities, where people want to live and work, and which improve the quality of life, meet aspirations and promote social cohesion.

Ancillary to this are the government's commitments to increase the number of new homes built to total 3 million new homes by 2020, and to tackle climate change by ensuring that all homes built from 2016 will be carbon zero

This has led to major urban mixed use projects on brown field sites, with local authorities, assisted by government delivery agencies, contracting with developers to regenerate run down city or town centres with high quality developments, incorporating new technologies, using surplus public sector land or, if necessary, exercising CPO rights.

The community itself is the focus to these schemes and integrated retail and commercial uses, accessibility to jobs, key services, transport and infrastructure, community facilities and public realm are all vital considerations, in addition to the provision of more, higher quality, greener, private and affordable housing. Issues such as carbon emissions reduction, use of renewables, transport, community involvement and employment all have to be addressed.

These multi party projects involve complex legal structures and frameworks and raise wide ranging issues including public procurement, best value considerations, site assembly and acquisition, planning and compulsory purchase, remediation, residential, commercial and retail development, provision of affordable housing, community facilities and public realm, financing and deferred payments, overage, sales and long term management

The key stakeholders have competing interests and objectives which can make regeneration a complex, difficult and risky business.

Government agencies are charged with delivering Government policies. For example, English Partnerships (soon with the Housing Corporation to become the new national regeneration the Homes and Communities Agency), has a major role in supporting urban renaissance and the regeneration and remediation of brownfield land. It seeks to achieve its aim of delivering high quality, sustainable growth by imposing design and environmental standards on developers, with benchmarks for delivery, and to generate capital receipts by imposing overage.

Local authorities have their own local requirements and political issues.

For developers, whether national home builders or commercial developers concerned with delivery of profits to shareholders or housing associations having to take into statutory regulations and grant considerations, and their respective funders, projects must be viable.

How will the current market impact on regeneration projects

The shortage of mortgages resulting from the credit crunch has led to reports of sharp falls in sales, increases in cancellations, with consequential staff reductions, pulling back of production and restrictions on site starts and land acquisition. Government figures have confirmed fewer starts and completions. [45]

The Home Builders Federation (HBF), referring to the implications to the economy and the housing targets, has called for drastic action, suggesting a range of proposals. Government attempts to address the situation, including the Bank of England's special liquidity scheme, the expansion of the shared ownership programme and use of part of the social housing budget to turn unsold homes into social housing, have been dismissed as insufficient.

Most regeneration projects are long term investments, backed by public subsidy, and the expectation, and our experience to date, is that many will continue, particularly in London and south east. Housing associations are less sensitive to market conditions and together with local authorities and the government agencies will continue to drive them forward. There are other catalysts for regeneration, such as the Olympics and developments in Thames Gateway supported by the London Development Agency.

However, even in favourable economic conditions, regeneration projects have a long lead in period and can take over a year to exchange, followed by lengthy negotiations before planning permission is granted. This involves a considerable amount of upfront expenditure by developers, all at risk, which, together with a lesser strength of covenant, effectively excludes smaller companies.

For developers the commercial reality, recognised in the Callcutt Review, is that projects must be viable. The imposition of obligations to deliver housing by specified dates to a multitude of benchmarks, secured by restrictions on disposals, will be increasingly resisted. Developers must have flexibility to control production to reflect the market and to cash flow developments by forward sales, including affordable housing.

Funding may be more difficult to secure on favourable terms and banks are likely to be more focussed on the covenant strength of participants and on due diligence.

What are the future issues

In a falling market the government's ambitious housing targets, and requirements for zero carbon homes, become even more of a challenge for the housing industry, with its imperative that building remains viable. The loss of jobs in the industry, already with a skills shortage, could have major impact when the market improves.

Government policies and new legislation continue apace: the Planning Bill, the Housing and Regeneration Bill and the Climate Change Bill and the proposals for eco towns on brownfield sites and surplus public are recent examples. Debate continues as to the Community Infrastructure Levy and on the definition of zero carbon.

Challenging times lie ahead!

Author: Jane Sewell, Housing Partner.

Appeared in Contract Journal published 16th June 2008.