Last week chancellor George Osborne sweetened £11.5bn in cuts with a £100bn infrastructure bonanza in his Spending Review.
As he once again swung his axe across Whitehall, his colleague in the Treasury, Danny Alexander, promised the most comprehensive capital investment plan “this country has ever known”. The two not only set out their stall for the general election in 2015, but outlined how the coalition aims to plug the growth gaps in the economy with extra capital spending for housing, road and rail spanning the next 10 years.
From 2015 government departments will have to juggle cuts of up to 10% and the start of a £5bn asset and land sell-off, while local enterprise partnerships will get a new pot of cash to stimulate growth. Together, these plans are intended to take the economy out of “intensive care”, as Osborne puts it, and into “recovery”. But with two years to go before much of this is implemented, has the government struck the correct balance between decisive cuts, targeted growth stimulus and creating the right market sentiment?
Housing
With historically low levels of supply, the government has to stimulate a huge growth in development and while there’s still funding for 165,000 new affordable homes in the ?review, it needs the private sector to deliver the real numbers.
The government estimates around 40% of all land with development potential is owned by the public sector, which is, according to Danny Alexander, a “compulsive hoarder”. The government has already sold £6bn of property and land since it came into power in 2010 as part of its pledge to help deliver 100,000 new homes. It’s still way short of that and wants an extra £5bn to be sold off between 2015 and 2020. The government clearly sees its land bank as a potential game changer when it comes to supply and it is taking a more focused approach to the sell-off.
From 2015 the Homes & Communities Agency will take control over all land disposals, removing the sales from Whitehall and local authorities. There will be a strategic land review to identify any potential surplus sites and a “right to contest” giving businesses and local communities the right to lobby for land across its £280bn portfolio.
The National Housing Federation has already said it will be encouraging housing associations to use this to push for “sensible sites”, which might not otherwise be forthcoming. The government is also dangling the potential of “incentives” allowing Whitehall and councils to keep some of the receipts from the sales. Local Enterprise Partnerships and councils will have to set out their “productive use of assets” if they want to secure additional funding through the government’s Growth Deal scheme. More details on land disposals are expected in the autumn statement, but it is clear there will no longer be any sacred cows in the public sector and if land is sought after there will have to be a strong business case to keep it public.
In principle, this is music to the ears of the property industry, but is it enough to stimulate the growth in supply needed, estimated to be 240,000 homes a year?
Alex Dawson, head of public sector at Savills, says the government needs to go a lot further to promote development. “We have seen changes to planning, but it’s not enough, it’s still a long planning process. The government needs to take further steps to get more site consents,” he says.
Adam Challis, head of residential at Jones Lang LaSalle, says the government needs to adopt a “use it or lose it” approach to planning to ensure schemes that do get permission go forward.
He adds that the impact of the land will also depend on its quality. “Land sales are not a fast process, it has to be viable for developers and it’s not the case that all public sector land will be buildable,” he warns. “It has to be the right sort of scheme and the right sort of use, it’s not as simple as flogging off land.”
That said, despite the £6bn in public assets already disposed of there has been a general reluctance to sell off the family silver. Local authorities have a lot of value tied up in their assets and have struggled to optimise that value in a slow market.
However, the possibility that they might keep some of the receipts and the government’s determination to speed up sales should see a swathe coming on the market from 2015. The NHF is ?already warning against a “fire sale of assets” while Dawson warns that land will need to be in the “right location with the right infrastructure”.
In parallel to the land sales, the government has also allocated £1.3bn for its Help to Buy scheme in 2015/16 to support home ownership. Launched in April, Help to ?Buy provides equity loans of up to 20% for new-build properties and a mortgage guarantee scheme from January next year. It has already caused controversy with fears that it will inflate house prices without adding significantly to supply. In fact the government estimates that it will have resulted in just 74,000 new-build sales in three years. JLL’s Challis warns that without more to stimulate supply, it will be a “dangerous policy tool”.
The Spending Review also outlined Affordable Rent To Buy, a £400m scheme that will fund new-build homes that are rented out on sub-market rates for a limited period. The sitting tenant will get the first chance to buy once that period is up. More details are expected in the autumn statement.
Local Enterprise
The £2bn per year in the Single Local Growth Fund was probably the biggest disappointment of the Spending Review for the regions. While the government accepted the recommendations in Michael Heseltine’s 2012 report, No Stone Unturned, it slashed the £18bn a year he outlined leaving just £51m for each of the 39 LEPs.
The government is also ?likely to be much more prescriptive on how LEPs use their funding in the next spending round. It has made it clear that it expects them to set out their plans as part of their Growth Deals.
Infrastructure
This latest update of the government national infrastructure plan, first published in 2010, has four strands: a public investment pipeline for roads, rail and housing, reforms of the energy market, the extension of the UK Guarantee Scheme (the financing of major projects) and the “strengthening” of the delivery of major public projects – notably High Speed 2. So far the government hasn’t had a sterling record on infrastructure delivery.
Jon Neale, head of research at JLL, says: “It is clear that the government is keen to rectify this, but it is questionable whether the projects are sufficient to make a real impact.
“The government ?needs to move quickly to press ahead with Crossrail 2 and should also examine whether further public transport investment is needed in both the capital and the main regional cities, which remain underserved compared to their European counterparts.”
Infrastructure: at a glance
• £100bn infrastructure investment programme until 2020
• Includes £70bn for transport, £21bn for schools and £10bn for science, housing and flood defences
• Adding 221 miles of motorway lanes by 2021
• £10bn to repair the national and local road network
• UK Guarantees extended until December 2016
• £9bn for a feasibility study into Crossrail 2
• HS2: £42.6bn for construction £7.5bn for rolling stock
Partnerships and the regions: at a glance
• The creation of a Single Local Growth Fund for LEPs with budgets of over £2bn for 2015/16
• An additional £5bn of transport funding in the SLGF from 2016 to 2021
• Granting LEPs responsibility for £5.3bn of EU structural funds
• £50m in 2014/15 for the Local Infrastructure Fund for Enterprise Zones
• £300m a year for the Regional Growth Fund from 2015 until 2017
• £30m in 2015 for the Greater Manchester Combined Authority’s infrastructure city deal
Housing and asset disposals at a glance:
• £3.7bn from 2013 to 2017 for the Help to Buy scheme
• £3.3bn to build 165,000 new homes through the Affordable Homes scheme over three years
• New £400m Affordable Rent to Buy scheme
• £400m of the New Homes Bonus to be pooled among the Local Enterprise Partnerships
• £300m in 2015/16 for the Build to Rent fund
• £102m in 2015/16 in loan and equity finance to help the private rented sector with infrastructure
• £160m for non-decent homes in the social housing sector
• Social housing rent levels set at CPI plus 1% a year for the next 10 years
• £5bn in public sector land and asset disposals
• Homes and Communities Agency to centralise land disposals from 2015
• Strategic Land Review to identify surplus public sector land
• A right to contest (giving businesses and communities right to ask for land to be sold)
• Possible incentives to encourage the public sector to sell its assets
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