The chronic under-supply of homes in the UK - recently reported at 4.3 million homes - has been described by thinktank Policy Exchange as “a key driver of the UK’s weak economic performance”, driving overcrowding and impaired labour mobility, which makes it harder for businesses to recruit staff.
However, a massive publicly funded building programme looks out of the question: latest figures from the Office of National Statistics put the UK’s public sector net debt at provisionally 100.8% of GDP in June, its highest for over 60 years, and central government funding to local authorities has dropped markedly in real terms over the last decade or more. So how might the private sector move the needle?
There is certainly appetite to get things done. Marc Thompson, divisional managing director at developer Countryside Partnerships, says: “Despite market uncertainty, there is still a massive imperative to drive budgets forward and build new homes. There’s still a great demand for housing, and consequently there’s an active private sector who are keen to deliver it.”
Homes England (HE), the government’s housing and regeneration agency and a bridge between local places, national policy and the private sector, aims to play a major role in engaging private enterprise. In June, it was announced that former PwC head of consulting, Tony Poulter, would lead a review of the body, placing a glaring spotlight on how the agency is brokering and helping establish “public and private sector partnerships that enable others to take forward schemes”.
The HE Strategic plan for 2023-28 directs the agency to go beyond its housing work to ”fully support the government’s broader levelling up agenda and increased focus on pride in place”. The current intention is to not only help deliver the homes the country needs, but also to “work with partners to support the creation, regeneration, development and continued wellbeing of communities in England.”
However, for the last five years, HE has had a laser focus on driving up the number of new homes built in England. This focus may have come at a cost. Northstowe, Britain’s biggest new town, a project for which Homes England provided new civic hub funding of £16.4m, was recently criticised in various media reports for severely lacking community facilities like shops, cafés and GP surgeries - despite over a thousand houses having already been completed and occupied.
Wayne Butcher, a director at Grant Thornton, suggests the PPP model may be well-placed to join the dots between housing and community. “Homes England has a longer-term outlook than a simple developer - not just building the homes, but creating the place and that often takes a generation, so I think PPP does potentially have a role to play there, helping to align the best short, medium and long-term horizons for all the different stakeholders involved.”
The long-term, operational engagement of PPPs across decades, providing ongoing maintenance for the project lifetime, fits nicely with the idea of ongoing improvements and the sustainability of well-conceived and well-looked-after spaces to drive the content, healthy and productive population the economy needs.
According to Butcher, that would be good for the planet too: “It’s now more than just building a house and there is a much longer life cycle of work and support in terms of the decarbonisation agenda, for example, with retrofitting being a potentially important consideration both now and in the future.”
In fact, Thompson suggests regeneration could play an important role in delivering the housing that the country needs. But the environment angle is not just about building new properties, he says. “There is an unanswered question currently in regard to the retrofitting of existing housing stock – bringing these homes up to decent standards is a major challenge for many housing providers.”
Martin Walker, senior director at Local Partnerships, has found that “the councils and combined authorities we support and advise are very much focussed around the concept of place, and this is particularly true of those councils who have established PPPs: although the creation of new homes is typically central to those PPPs, their objectives are usually broader than that.”
A 2022 report commissioned by the Local Government Association also found that where authorities are facing an affordable housing crisis, PPPs can be well-suited to addressing housing and regeneration challenges. They can ensure these strategically important projects are delivered and accelerate delivery through availability of capital.
As an established hub for a range of UK housing stakeholders, HE has already leveraged £9 of private sector investment for every £1 it invests in an equity deal. For Butcher, that sort of engagement has been enabled by “the blend of expertise that Homes England has, with ex-developers, ex-bankers and ex-local government employees on staff, giving the agency the ability to see housing from all sorts of angles”.
Meanwhile, Jackie Sadek, co-author of recent white paper, Public Rental Homes (PRH): Fresh Perspectives, and a former housing and urban regeneration policy adviser to the government, specializing in public-private sector partnerships, sees the job of fixing what she views as the ‘utterly broken’ UK housing market as a huge undertaking.
The solution, she believes, will take a variety of forms, with one possible option being to boost unsolicited project proposals from private consortia. HE could then leverage its talent to support local authorities in reviewing, negotiating and progressing suitable deals, as well as providing loan or grant funding where appropriate.
Sadek supports an environment in which the commercial drivers are much more compelling for the private sector. “The job of the council is to provide homes, not play at [being] developers. Forget the profit, remember the homes. Let those who know how to build do the building.
“Whichever model, you have to bake in a proper margin for the builders. For PRH, we suggested 20% rather than the sub-10% they are granted in Section 106 agreements.”
Butcher notes that such incentivisation will attract scrutiny of what private partners can give as justification in terms of factors such as “the wider ESG return and job creation”. But it’s worth remembering that this kind of added value is now increasingly hard-wired into the offerings of PPP participants.
According to Walker though, the last few years have seen changes to the context that have created difficulties. He cites: “The removal of the HRA borrowing cap, the impacts of Covid and the Ukraine war, and the impact of inflation and higher borrowing rates. We are currently working with a lot of councils who are asking us to review the progress of their delivery vehicles and PPPs, often because they are frustrated that progress has not been as quick as hoped.”
Other reasons for the sluggishness may be connected to the loss of capacity suffered by local authority planning departments. “This is a fundamental issue,” says Thompson, “as the resources are simply not there to service the volume of work.”
“As for the private sector,” says Walker, “we find that while the appetite to work with the public sector is as strong as ever, there is perhaps an increased wariness around embarking on large scale procurement exercises, with all that this involves. Inevitably we are also seeing a lot of caution around inflation.”
Butcher agrees. “To get a fixed price contract at the moment is still very challenging. What we’re seeing in terms of projects at the moment is that you’ve got to be flexible – not just with housing – but especially where timescales can be quite broad from the time of commitment to the time of starting works.”
That said, he sees the influence of HE as a positive here, with one of the lessons learnt from the past being “around flexibility and recognising that actually, to get a project moving forward, you potentially do need to compromise and come to a variety of solutions which ticks boxes in all stakeholders’ lists of needs”.
In this context, Thompson sees real value in partnerships too. “Long-standing relationships with supply chain partners has meant that projects can keep going, and this is where joint ventures have proven to be very sensible, with a more modern approach to risk sharing. This means you’re all in it together in difficult times and have a transparent approach to risk.”
Despite the present challenges, the scale of demand could put HE in a crucial position. “If private entities went to the local authorities, potentially with the help of the experts within Homes England, and put together a model where they felt comfortable, there is a massive amount of business to be done,” suggests Sadek. She also points out that the agency “helpfully also has a portfolio of over 9,000 hectares of land and around £16bn of combined capital spend (loan, grant, equity, and guarantees) to deploy by 2027/28”.
There are already precedents for this model, including Cubic3, which specialises in the delivery of complex infrastructure and accommodation projects, injecting investment and which has already led a PPP consortium in a social housing project.
The very nature of PPPs as long-term collaborators with broad skillsets that can deliver on the major objectives of increasingly devolved local authorities, makes them a highly valuable option. At the same time, the knowledge and insights available through HE can prove to be useful. Butcher sees this as a knowledge network that connects the private sector and public sectors and which means that “one party doesn’t necessarily have to be responsible for finding all the solutions, and there is definitely more to do to build that collaboration”.
Given the size of the problem, that seems like a very sensible conclusion.