Regeneration survey: Time for a change?

By Hayley Rees, Managing Director, PIC Capital

It was striking to me that in this second LGC/PIC local government regeneration survey, 57% of respondents thought there was either a ‘high’ or ‘very high’ barrier to securing private sector investment to back regeneration projects.

A council’s own resources or central government funding remain the primary anticipated sources of funding for regeneration projects, with both chosen by almost 90% of respondents.

This is striking because long-term investors like Pension Insurance Corporation, and the pension risk transfer sector of which we are a part, are expected to be significant investors in UK housing and infrastructure over the next decade.

We expect something in the region of £600bn to pass from defined benefit schemes to insurers like PIC, which will lead to an estimated £200bn being available for investment in the economy, as we take on increasing amounts of assets from defined benefit pension schemes and seek to back the pensions of our policyholders with secure long-term cashflows.

Purposeful Finance Commission

From our side, the issue is that there simply aren’t enough regeneration projects being brought forward by local authorities to satisfy demand.

The findings of this second LGC/PIC regeneration survey, in which over half of all respondents quoted a lack of planning expertise in their council holding up regeneration projects, echo the findings we have found elsewhere.

In November, the PFC released a report analysing investment across the UK, identifying a lack of local government capacity and investment expertise holding back the completion of regeneration projects.

Playing the waiting game

The report outlined three main barriers preventing private sector investment into local areas: a lack of capacity and expertise in councils, especially among planning and regeneration teams; government grant bidding processes, which result in councils competing against each other for the same funds; and an unwieldy, time-consuming planning regime which slows down developments and increases costs.

The issue with regeneration projects being delayed, or cancelled altogether, has a profound effect on the resilience of local economies to flourish. Fewer regeneration projects mean fewer apprenticeship opportunities; skilled workers move to where there is more work, and local businesses become more cautious.

However, this second LGC/PIC regeneration survey does also point to the fact that several of the negative pressures facing regeneration projects six months ago, and at present, may well be reversing in six months’ time.

It is clear several respondents are playing a waiting game, citing the political uncertainty around which party will be in power after the next general election: “Much depends on the election, and … new priorities with whoever takes charge,” as an assistant director for placemaking and growth in the south-west said.

Also, with inflationary pressures at last beginning to subside and headline inflation now back to 2022 levels, construction price inflation which has so significantly delayed the start of many projects in the past two years looks set to change.

Planning expertise and funding

However, according to recently issued government data, decisions on planning applications by local authorities were still down nearly 12% in the year ending December 2023 on the previous year.

Why? As the LGC/PIC regeneration survey results show, a very significant factor for the lack of projects is simply that many local authorities no longer have either enough expertise or funding in their planning teams to bring projects forward. More than three-quarters (77%) of those surveyed from local government believe a lack of expertise within their council is a barrier to delivering regeneration projects in their area, and just 8% said a lack of local skills does not pose any obstacles.

So what can be done?

One solution put forward by the PFC is the establishment of an independently managed fund with a target of raising £22.5m, paid for by businesses with an interest in an efficient planning system, such as investors, developers, the transport sector, supermarkets, universities and others, to fund a team of specialist planners to help unblock the system to tackle some of the current planning backlogs.

Such a solution would enable the private sector to work in partnership with councils to actively contribute to a solution that helps overcome the lack of planning expertise and capacity across the country and bring forward regeneration.

We all need to get Britain building again.