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Build back infrastructure to invigorate housebuilding sector

Posted: 8th March 2021

Rodney Whyte, Partner and commercial property specialist at Pinsent Masons

“Build back infrastructure” is not as snappy or alliterate as the build-back-better mantra favoured by politicians who believe that post-Covid-19 there is an opportunity to do things differently.

But it does have a serious point, at least in my view, when it comes to kick-starting  housebuilding projects and going some way to addressing the country’s chronic housing crisis.

Traditionally, it has been the developers who have had to shoulder the initial cost, and therefore risk, of installing the necessary roads, sewerage, communications and water supply infrastructure that any new housing development requires before the first brick has been laid. This upfront investment, which can total millions in larger projects, is factored into the unit sale price and is gradually recouped as the development reaches completion.

The economic downturn due to the global pandemic continues to impact on both consumer and corporate spending and confidence, and in the housebuilding sector this may manifest in stalled developments and investor nervousness in committing to schemes, particularly in marginal areas which perhaps are most in need of new housing and investment.

In supporting different parts of our battered economy, the Government have introduced a range of supportive initiatives – from furlough to cash grants, to business interruption loan schemes, and offering businesses more time to pay VAT and corporation tax.

So, what if Governments were to put aside convention and step up to the plate by forward funding infrastructure specifically for housebuilding projects?

By building-back-infrastructure to enable development, Holyrood and Westminster governments would send a strong signal to developers and funders that they should dust down projects which are at risk of not proceeding due to heavy up front costs and questionable viability.

A simplified framework to facilitate future developments would have a significant impact on so-called marginal viability areas where the housing market is not as strong as the Central Belt hotspots, and where prospective housebuilders may take the view that the risk of investing potentially millions upfront in infrastructure is too great.

Separate and distinct from the ongoing work of the Scottish Futures Trust, the current economic situation calls for role reversal and a willingness by big government to take a proactive lead in delivering infrastructure to prime development sites. This would minimise risk for investors and encourage developers to get on with the job of delivering much-needed homes in places that may never otherwise see such investment.

The tax payer would not be out of pocket as developers would be committed to repaying government expenditure retrospectively as the units are rolled out and missives exchanged, much in the way that planning gain is collected at present via Section 75 Agreements.

There is a precedent for innovative government intervention. In 2016 an £86 million guarantee scheme was introduced to support the building of 3,000 new homes, two primary schools, a high school, dental practice and retail facilities at Countesswells in Aberdeen. Under the scheme the UK Treasury guaranteed that lenders to infrastructure works associated with the Stewart Milnes Homes-led project would be repaid in full and on time.

A fresh approach by central government to supporting the housebuilding industry would have a ripple effect. Jobs would be created in the initial stages of putting the infrastructure in place and through to the construction phase of delivering the new homes. The creation of additional educational hubs would not only support new communities but may reduce the strain on existing school rolls, generate planning gain investment and ultimately Council Tax receipts.

Improved road networks or other transportation links, for example new rail stations for large scale projects, are attractive to a mobile workforce who will commute to work, while appealing to employers who need access to skilled workers. And of course these new communities contribute to local economies, supporting the retail, leisure and hospitality sectors

As vaccines continue to be rolled out at pace, schools start to reopen, and business and commerce look forward to shrugging off the Covid-19 cloud which has hung overhead for more than a year, let’s hope the Government clarion call to build-back-better is not simply another disposable slogan, but something which can be gainfully deployed.

Business Comment

Business Comment is the Edinburgh Chamber of Commerce’s bi-monthly magazine. It provides insight on Edinburgh’s vibrant business community, with features on the city’s key sectors, interviews with leading figures and news on new business developments in the capital.
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