Taking the North to greater heights by fostering private investment

COMMENT In Michael Gove’s recent keynote speech, he set out 10 principles, including making architecture great again, greener homes and increasing home ownership. However, much of these themes were strands within his points about the “regeneration and renaissance of the hearts of 20 of our most important towns and cities”. Gove argues for greater efficiency of land by increasing densification, with the focus on growing productivity, economic development, preserving green belts and delivering all of this with an increased focus on high-quality design. So what does this mean for town centres? Density clearly makes sense for the locations where it is appropriate. His comparison to European cities is very true. The higher intensity of footfall and usage creates a high level of demand for commercial/convenience uses, which again creates a vibrant and dynamic community setting. However, thinking about building types, to densify our town centres will require height. This will require apartment development, which is more costly to develop than suburban housing equivalents and outside of the major UK cities, it does not currently have a private sector market to fully fund its development.  At present, under a build and then sell model, apartments in Greater Manchester towns can have a difference between value and cost of more than 50%. However, over the long term, under a rental model, rental growth will produce an investment return. Albeit this return is likely to be too low for private funders to meet the entirety of the initial development costs.  Addressing this gap between the cost of development and what private funding can support is the classic viability gap and this has been plugged for many years with a variety methods such as grants, head leases, guarantees, patient equity and, more recently, the use of impact fund investments.  Busting the myth What is often a myth is that there is no private investment whatsoever for apartment development in our town centres. On the contrary, the market is keen to support this type of development, at the right price point, with recent examples the Upperbanks build-to-rent scheme in Rochdale, where Livingway purchased 242 apartments for more than £30m on a forward commitment basis. CBRE was able to attract more than five institutional parties to this opportunity, even after the mini budget of 2022. The council funded the viability gap with the support of the Future High Street Fund and the GMCA Brownfield Development Fund.  So why would and should the public sector support these schemes? Well, by doing so, they create the product and test case in their town centres that demonstrates the levels of rent and demand do exist. This edges the private funding markets closer to becoming fully functioning and actually developing using private funding for the entirety of the development costs. The prize for Greater Manchester alone is significant – CBRE research suggests there are some 10,000 homes that could be delivered in the county’s town centres which are already proposed for development but require public support to initiate their construction.  How far could this go? Clearly, developing suburban/rural locations is not going to stop and the government would have to drastically disincentivise it to change behaviour. There is also a cultural shift; we can see younger and older demographics can be housed in denser schemes in our town centres if the quality of homes is right. Although, when comparing the UK to the European cities, it is clear that to attract the families, our level of social infrastructure would have to be radically improved.   Social infrastructure is key In Munich, many families live in apartments that are supported by the most fantastic parks, nurseries, leisure facilities and commercial amenities which means that it really doesn’t matter that people have limited amounts of private living/outdoor space. To make this strategy work, successive governments are going to have to put forward some significant capital investment and regulatory reforms. Capital is needed to support the viability gap and incentivise the private market to come forward and meet initial development costs. Secondly, to genuinely attract the family market; social infrastructure is an absolute given.   To do this at pace will require control of sufficient areas of land by assembling fractional ownerships, funding remediation costs and dealing with price speculation issues around the land. The Levelling Up Bill goes some way to achieving this with amendments to CPO legislation but local authorities need to be given the encouragement and revenue support to initiate such bold and dynamic approaches which are often highly contentious. Our recent experience in Stockport town centre of assembling eight acres of development land in only three years, without CPO, shows what can be achieved but it requires strong local authority leadership and community consensus.  What Gove has described could indeed be beautiful and totally transform our town centres. However, it is going to need a long-term, cross-party plan, collaborative efforts with the private sector and a major national infrastructure delivery and funding programme. For the benefit of our towns, I really do hope this happens.  Alistair Chapman is senior director, UK development advisory and local authorities lead at CBRE