At the Convention of the North in Manchester on 25 January, housing secretary Michael Gove announced the government’s recommitment to investment zones. The initiative will allow some local authorities to designate sites that will be earmarked for tax cuts, relaxed regulation and planning simplifications within that area.
Investment zones are expected to bring forward a mix of additional commercial and residential development. However, without additional private sector financing from long-term institutional investors, for example through regeneration leases, this initiative will struggle to get off the ground while public finances remain so heavily constrained.
Investment zones could play a significant part in levelling up. All zones will have a mandate to boost growth. The UK’s fragmented planning system, a commonly cited hindrance by those involved in the regeneration of towns and cities, will not stand in the way of investment and development in these sites.
The zones are also expected to be aligned with existing local growth strategies and transport plans. As part of the selection process, local authorities will need to demonstrate that they have business sponsors ready to lead and drive investment opportunities.
Institutional investors could provide significant finance to support projects in investment zones. But we need to take things further. Long-term regeneration leases could play a more significant part in funding levelling up.
Investment using these lease structures could provide funding and partnership for local authority construction projects across the country and provide long-term stable cashflows, as institutions seek to invest in regeneration developments with a high degree of social value to back their long-term pension obligations.
We’ve successfully used this funding structure to invest £130m to finance the construction of 500 homes at Miller’s Quay, the cornerstone of Wirral Waters, the UK’s largest regeneration project.
This regeneration lease structure has provided investment for the project that would not have been available from traditional structures, while generating secure long-term cashflows that allow us to match our policyholders’ pension payments decades into the future.
The regeneration lease structure could be adapted across a range of sectors and projects, on behalf of local authorities, housing associations, universities, NHS trusts and other organisations to unlock funding for regeneration schemes, enabling levelling up across the country.
Hayley Rees, managing director, PIC Capital
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