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The future of funding

Regeneration & Renewal – 12 October 2009

Last month, the Homes & Communities Agency published its first corporate plan. Mark Smulian investigates what it means for future regeneration funding.

National regeneration quango the Homes & Communities Agency has had a baptism of fire. Fusing the work, finances, policies and cultures of the Housing Corporation and English Partnerships was tough enough, but doing so amid the worst recession for decades has made the task even harder. Not least, this is because the prices the HCA can sell its land for have collapsed just as the recession has increased the demands on it to keep regeneration and social housing construction alive.

This is the climate in which the HCA has produced its first corporate plan, covering the period to March 2011. The plan shows that, while this financial year might be hard, the next will be worse for those who want to access the agency's funds, because spending was pulled forward from 2010/11 to 2009/10 to help fight the recession.

In such circumstances, serious questions need to be asked about the future funding of regeneration.

How much have the HCA's land receipts declined, and to what extent are they expected to fall in the future?

The HCA inherited some 8,500ha of land. In normal times it would sell sites to support its work. But times are abnormal. Figures supplied to Regeneration & Renewal by the agency show the effects of the recession on its receipts from land sales. These were 364 million in 2005/06, then 332 million in 2006/07 and 333 million in 2007/08, before plunging to only 33 million in the first half of 2008/09.

Figures for the whole of that year are due next month, but it would need a remarkable turnaround for the receipts to even approach those achieved in recent years.

This has forced the HCA to revise down its expectations for land sales receipts by 332 million this year and 275 million next, compared with projections it made in early 2008.

How will the decline in land receipts affect the HCA's regeneration spending?

Badly. These receipts helped to finance work in the Property and Regeneration Programme, an umbrella title for a number of budgets inherited from English Partnerships. This is worth 406 million this financial year, but will fall to just 211 million next year.

Chief executive Sir Bob Kerslake has warned that the vast bulk of what remains in this programme is already committed and there will "probably be very little" unallocated money available for new schemes to bid for in 2010/11.

What impact will English Partnerships' recent write-down of its assets have on future regeneration funding?

English Partnerships' website appeared to be of only historic interest after the HCA succeeded it last December. But in July its final set of accounts quietly appeared there, showing its land holdings value written down from 718,882 to 480,706.

An HCA spokesman described the write-down as "an accounting loss". It was indeed not the disaster it would have been for a private firm that borrows against its land's value, since the HCA does not do that. But it does mean that it would not be sensible economically for the HCA to sell the land to finance its work. It must, therefore, either hold onto it and hope for better times, or use it for projects where the value of the land is not determined until the development is complete.

An example of this is its new Public Land Initiative, into which the HCA intends to place some of its own land as well as sites owned by other public bodies (it says 45 councils have so far expressed interest). Under the scheme, landowners would be required to sell the land only once developments are complete, by which time, the HCA hopes, values will have risen.

HCA strategy director Trevor Beattie explains: "The model requires the landowner to defer (taking the value from) the land until the site has been developed and sold. We are, though, able to make some pump-priming infrastructure funds available."

If the Property and Regeneration Programme budget is falling in value, what will fund renewal?

Despite the name, the Property and Regeneration Programme (PRP) is not the only HCA source of regeneration finance, and the boundaries between this budget, the National Affordable Housing Programme (NAHP), which is intended to fund the building of 155,000 affordable homes every year to 2011, and other initiatives will be dissolved as quickly as the HCA is able to create a single pot for funding, although government consent is needed in some cases.

As Beattie says: "Because of the property slowdown, there is less (money available) in the Property and Regeneration Programme, but that is not all we have for regeneration. We can use other programmes such as NAHP to support regeneration, so the cut is not as deep as it might have been."

He concedes that the NAHP cannot be used for schemes without a housing element, but says that such schemes are "rare". The vast majority of regeneration projects contain some element of housing.

Is there any uncommitted money available, for which bids can be made between now and 2011?

Relatively speaking, not a lot. There is about 650 million left from this year's 3.2 billion NAHP. For 2010/11, the NAHP has 2.49 billion uncommitted. But little other money is available. The PRP is almost wholly committed and the Housing Private Finance Initiative, worth 18.7 million, has been allocated. In July, the Government cut funding for each growth area by around 40 per cent, so what remains is spoken for. Other large budgets, such as Kickstart for stalled developments and the Housing Market Renewal Pathfinder programme, are limited to defined categories of bidders.

For those who must wait for money until 2011/12, the picture could be bleak. Chris Brown, chief executive of developer Igloo, says: "This plan describes a journey downhill, but because it does not go beyond March 2011 it does not describe the cliff face that it will go off beyond that, when it is almost certain that the HCA will have massive budgetary challenges in common with the rest of the public sector. I think this plan shows that the next two years will be as one would have expected."

How can bidders tap into this money?

Bids for 2009/10 and 2010/11 NAHP funding can be made via the HCA's continuous engagement process, under which scheme promoters negotiate when they are ready, rather than waiting for a bidding round. Other funds have their own bidding rules, but nothing in the new plan has changed these.

The allocations in the plan run to 2011. How will the HCA allocate money to regeneration after that?

In one sense it doesn't know, since there could be a new government that wants to change how it works or even abolish it. That aside, the HCA plans to allocate money through the "single conversation" discussion mechanism conducted with local partners. As far as possible, it will seek to bring housing and regeneration funds together to finance agreed local priorities that arise from this process.

What would 'single pot' funding allow the HCA to do that it cannot already?

The HCA wants to move to a single pot of funding as it feels that this would allow it to address housing and regeneration more effectively by no longer having to worry about whether projects were eligible for money under multiple and complex individual budgetary rules.

Beattie says: "The point is to break down budgets. We want to come up with more flexibility because we can drive a lot of added value that way. We can get much better use of money by using all our funds through the single conversation."

Mike Lambert, chief executive of Renaissance Southend and chair of the group of chief executives of urban regeneration companies, says: "The single pot is welcome as it will allow the HCA to better address local needs and we hope the Government will give it any powers needed to do that."

Would there be any downsides to a single pot for some types of regeneration that cease to have dedicated programmes?

Government consent is needed to merge some budgets and thus if the Government wished to carry on with, for example, the Housing Market Renewal Pathfinder programme, it could insist on a dedicated budget.

Loss of separate budgets could mean that areas that cease to be political priorities lose out.

Danny Friedman, head of housing at consultancy Ecotec, thinks the blurring of budget boundaries could endanger, for example, housing market renewal. He says: "The economic situation may mean there is more emphasis on growth than on regeneration, so you might see money coming out of areas of low demand housing in the North and Midlands, and going into areas in the South that need housing growth."