Estate regen: nice idea but how do we pay for it?

Institutional finance is queuing up to enter the UK residential sector, but the estate regeneration the prime minister is pledging could be a risk too far, says Mark Farmer

The recent flurry of government announcements regarding housing shows no sign of abating. David Cameron’s decision to face into the long term problem of the country’s so called ‘sink estates’ is a brave one on many fronts but in reality, any evolution of a coordinated public land and planning policy that is looking to deal with improvements to housing supply and community cohesion would be incomplete without addressing this area.
The £140 million that has been earmarked for this initiative, as has been well covered following the announcement is a drop in the ocean in terms of the total capital cost of regeneration that we might be looking at here. Talk about ‘pension fund’ investment in this initiative is interesting but perhaps leads to where the nub of the issue is in my view – viability.
Estate regeneration is notoriously complex, bringing into play ownership and compensation issues complicated by ‘right to buy’ where freeholders now live pepper potted amongst remaining social tenants, and also the sensitivities of breaking up communities and the phased decanting of tenants. The time lines for such schemes are extensive and the returns are often marginal unless supported by a density increase and a tenure skewed towards houses for sale to cross subsidise the often extensive cost and programme abnormals that characterise these projects. The spectre of costly enabling works such as demolition and asbestos removal and the re-provision or enhancement of associated social and physical infrastructure means that the development risk is often high and the return on capital and long term yields can be supressed.
The likes of Park Hill in Sheffield or the Ferrier Estate in Kidbrooke prove that estate regeneration can be done well but in all instances the challenge is being able to provide the return profile that will make it an attractive proposition to the private sector, especially if being done at scale.
Institutional finance is queuing up to enter the UK residential sector at the moment but it is seeking long term steady returns and is not necessarily looking to go up the risk curve in terms of development complexity and delivery risk. Getting the marriage right between the financing market and the development and construction industry offering an appropriately de-risked and sufficiently valuable solution for investors will be key here. The so called low density ‘complete streets’ concept that apparently has informed government thinking is laudable but is it bankable?

Mark Farmer is founding director and chief executive officer, at residential consultancy Cast.