On Thursday evening this week, I will be hosting an evening panel event with London First, at our London offices, on the current state of play of the Build to Rent sector in the UK, part of our Building Up series of events and insights, looking at the challenges arising in optimising the potential of development sites.
As we look ahead into a new decade, with a generation defining general election behind us, and Brexit no longer dominating the political discourse – at least not until November - this is hugely exciting. The panel will include the CEOs of Grainger, Global Apartment Advisors, and Telford Homes together with the Director, Residential Research, Savills and my fellow real estate planning partner, Clare Fallows.
Whilst there will be a number of topics under discussion, viability is sure to be one. This issue is particularly pertinent to schemes in London and the south east of England where high land prices have made it a challenging environment for developers and investors. One of the main contributory factors is a lack of suitable land supply.
I believe this is where the public sector can step up to the plate by unlocking the potential of its land holdings. However, not by divesting itself of its crown jewels (and the brownfield sites). Instead, it can share in the financial and social benefits from development by contributing its land holding as its equity contribution in a joint venture and thereby benefit from a long term income stream to meet its own long term liabilities. A key local government objective remains the need to generate income following the reduction in central government funding. The Defence Infrastructure Organisation is also under pressure to achieve a 30% reduction in the Ministry of Defence's 'built estate by 2040 and help meet central government housing targets - 1.8% of the UK's land mass is owned by the Ministry of Defence (and its not all in Salisbury and Knightsbridge).
Whilst delivery structures to achieve this vary from creating a ground rent investment through to a wholly owned housing vehicle, the JV/partnership model lies in the middle and along with providing the public sector a share in development profits it can also provide control over the type and number of homes delivered. The public-private joint venture can therefore create a virtuous circle as it helps meet housing targets in local plans, stimulates jobs and communities and acts as a catalyst for wider regeneration whilst also providing the investor and developer with their returns.
The joint venture announced last year between TFL and Grainger plc was a prime example of the public sector and private sector engaging in such a ‘win-win’ partnership. The partnership has the potential to deliver in excess of 3,000 new homes and will significantly contribute towards TfL's affordable housing provision across its entire portfolio and help it to deliver its affordable housing across its estate.
In my experience, joint ventures are most successful where each partner get a fair reward for its contribution and there is transparency in open book accounting as well as a good ‘cultural fit’ between the partners. It is encouraging that the public sector (and in particular, local authorities) have an increasing appetite to take on development risk in order to achieve such financial and social outcomes.
Perhaps Mark Twain was right, “necessity is the mother of taking chances.”
Will there be increasing calls for a new dedicated planning use class? Yes, but that’s a post for another time although something which I am sure we will discuss on Thursday.
If you have read this far and would like to attend, there are still a few spaces left so please do PM me or view the event here. It will be followed by a drinks reception.
this is where the public sector can step up to the plate by unlocking the potential of its land holdings - 1.8% of the UK's land mass is owned by the Ministry of Defence.