Only by attracting long-term institutional investors can we reverse the decline of large parts of urban England. Jon Rouse has some suggestions
It could be the storyboard for a new Heineken advert: a group of inward investors aggressively competing for the opportunity to develop a brownfield site in the middle of Blackburn, Barnsley or Blyth. How refreshing…
Instead, the invisible force field that runs around the M25 entraps many investors. The few who do venture through can rarely find reasons to stray beyond charted territory. As a result, large parts of urban England are off the map when it comes to attracting long- term property investment.
But the Urban Task Force’s diagnosis is clear. Without an increase in institutional investment flowing into the English regions, the urban renaissance will remain only a tidy sketch on the draughtsman’s board.
Our average annual capital investment in housing over the past 20 years has been running at just over 3.5% of GDP. But Italy, France, the Netherlands and Sweden invest substantially more than we do and Germany invests 6%.
Private rented sector in the doldrums
Investment in the private rented sector is at a low ebb. A healthy private rented sector is a must for any ambitious European city wanting to benefit from the free flows of labour across the EU, and yet at only 10% of the UK housing market, our private rented stock is only half the size of France’s.
We cannot continue to rely on public investment and short-term debt finance alone in meeting the development needs of the English regions. We must have investors taking a long-term stake in our urban areas to generate long-term capital gains.
The Urban Task Force has put forward recommendations for achieving a breakthrough in fund managers’ perceptions. The first is the creation of a number of joint public/private long-term investment funds to share the risks and rewards of investing in a portfolio of projects in specially designated regeneration areas.
Advantages of specialised investment funds
These funds would:
- avoid the inefficiency of individual investments in small regeneration projects;
- bypass the accepted lack of public sector financial expertise at the local or project level;
- spread the risk in the timing of investment returns;
overcome investor doubts about the machinations of local politicians, whose priorities change with the electoral wind.
Our second big idea is the Reit-petite. Borrowing from the USreal estate investment trust model, we see a compelling case for a lightly regulated, fully tax-transparent trust to attract capital into new private rented housing. This will be especially needed since 80% of the 3.8m households projected to form over the next 20 years will be single-person households.
Finally, the PFI. What we have in mind is a housing-based private finance scheme that encourages a private sector promoter to take a long-term role in meeting wider neighbourhood needs, thus again enabling the investor to protect the value of the overall investment over the long term.
The total package of provision could include renewal and subsequent management of existing social housing stock, acquisition and renewal of derelict owner-occupied stock, new residential build for rent, provision of workspace and other commercial facilities, and provision of services and infrastructure. It could work for the renewal of existing residential areas of derelict, vacant and underused land.
The percentage of institutional investors’ assets held in property has been declining for the last decade and a half. Our northern and Midlands towns and cities have lost out the most. With the prospect of long-term low interest rates and low inflation, combined with a steady increase in house prices in real terms in most parts of the country, urban property investment in general, and residential property in particular, is becoming an increasingly attractive option.
Will investment patterns change to meet this new set of regional property needs and demands? That will depend upon the attitude of Her Majesty’s Treasury and the investors themselves. We can provide the ideas. Only they can deliver. But there is no time like the present.
Jon Rouse is secretary to the Urban Task Force. The Task Force’s final report, Towards an urban renaissance, is available from bookshops for £19.99.
