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New and Innovative Approaches to Funding Development Mixed and Sustainable Communities Learning Network26th March 2009

Mixed and Sustainable Communities Leaning NetworkPricewaterhouseCoopers LLP

March 2009

The Agenda

1. Who Am I?

2. A Working Definition of Mixed and Sustainable Communities

3. Key Issues in Delivery

4. PwC & Funding Innovation

5. Equity to Grant Housing Model: A Case Study (I)

6. Taxation Increment Financing: A Case Study (II)

7. Bolton Housing: A Case Study (III)

8. Key Considerations

9. Questions and Discussion


March 2009

1. Who Am I?

• Neil Rutherford Assistant Director, PwC

• Government and Public Sector Team

• Primary Role: Advising both the public and private sector

• Extensive experience of raising finance and funding

• History of Innovation

• Strong track record of delivery across sectors

Selected Experience:

• Commonwealth Games Village – Consortium Financial Adviser

• City of Edinburgh Council – Edinburgh Waterfront TIF

• Scottish Government – Housing and Regeneration Secondment

• London Borough of Barnet – The Barnet Financing Plan

• Western Isles Schools project – The ‘Hybrid’ Approach

• Argyll & Bute Schools – Non-Profit Distributing Model

• Midlothian Council – Shawfair Mineswater CHP Feasibility Study


March 2009

2. A Working Definition of Mixed and Sustainable Communities

What does it mean to you?

• A string of well differentiated neighbourhoods and developments;

• A vibrant mix of uses serving each neighbourhood as places to live, work, learn, invest and enjoy;

• Delivering key strategic objectives (National, Regional and Local) and social benefit;

• A clear focus on public realm and development and how this ‘serves’ and ‘enables’ the Community;

• Delivering high quality development with ambitious environmental targets; and

• Connectivity to the wider community (e.g. transport links).


March 2009

3. Key Issues in Delivery

Up-frontFunding

Connectivity

Structures

CrossSubsidy

Role of PublicSector

Risk

DeveloperCapability

‘History’

Land / SitePreparation

Raising& Cost ofFinance

TheEconomy

KeyIssues


March 2009


March 2009

How widespread is the demand for new approaches ?

More funding flexibility needed

Key issues• Transport• Housing• Social

infrastructure

86% 64% 81%Businesses unhappy with current infrastructure funding arrangements

Lack of investment in major infrastructure is restricting economic growth

Slide 7


March 2009

4. PwC & Funding Innovation

•Grant to Equity Housing Models

•Government and Local Authorities funding public sector infrastructure and enabling the environment for development e.g. Taxation Incremental Finance

•Moving from balance sheet funding to limited recourse finance

•Partnership Models - LABV

•PPP / Non-profit distributing model


March 2009

5. Equity to Grant Housing Model: A Case Study (I)


March 2009

Equity to Grant Housing Model

• Changing the assumption that new, grant funded social housing remains as social housing forever (i.e. in perpetuity) outwith RTBs and shared ownership

• The Model assumes that the housing unit can ‘leave’ social housing and be sold on the open market at a market value at an agreed point in time

• Going forward, has the potential to:

Increase the value of the property at the outset

Provide additional finance up-front

Increase the number of affordable units that could be funded today.

• Ultimate aim is to deliver mixed communities

• However, flexibility of tenure is important particularly in the current market

• Original work based upon conservative assumptions, with further work being undertaken to understand tenure flexibility / current environment


March 2009

6. Taxation Increment Financing: A Case Study (II)


March 2009

TIF: The Context

Key Local Objective

•Assess the feasibility of TIF at a local level

National Initiatives and Objectives (Scotland)

•The Scottish Futures Trust

•The Local Government Concordat in Scotland

•Firm Foundations, Social Housing need and the Scottish Housing Quality Standard

•Scottish Sustainable Communities Initiative

Primary Theme: the need for sustainable mechanisms to allow greater freedoms at a Local Authority level to fund

and deliver local infrastructure


March 2009

TIF: Key Objectives

•Flexibility to develop local funding solutions for local infrastructure

•Secure additional funding for infrastructure to support growth and private sector development i.e. reduce any funding gap

•Establish a prioritised ‘Infrastructure Investment Plan’

•Develop a new financing proposition to incorporate the capture of locally generated revenue streams

•Assist in the delivery of Local and National priorities and objectives

•In the short term, build confidence and deliver investment in today’s environment


March 2009

TIF: How Does TIF Address the Funding Gap?

LA finances the delivery ofdevelopment and regeneration

projects

The TIF mechanism captures the related incremental tax

and other new revenues

The captured revenuesand income are used to meet

debt repayments

Financed projects delivergrowth and enable private

sector development

The ‘Virtuous Circle’


March 2009

7. Bolton Housing: A Case Study (III)

PricewaterhouseCoopers LLPMarch 2009

The need for new delivery models

Why a New Approach

Limitation of Decent Homes Need for transformation Affordability and supply issues Under utilised assets Funding constraints Existing models insufficient

Arms lengthManagement organisations

limited shelf life, no assets or covenant

Housing Transfer

Political risk, gap funding, rigidity of gearing

PPP / PFI

Limited resources, uncertain pipeline, need certainty


March 2009

Delivery Vehicles

The challenge:

• Development of 6,000 units of housing

• Aim: Mix of private for sale (50%) and affordable (50%)

• Capacity to shift tenures and initial focus

• Ability to secure Bridging Funding

• Identify best form of delivery vehicle

• Minimise grant required/maximise leverage from grant

• Generate income / surpluses to reduce capital cost of affordable housing and…………

• Fund wider Great Estates programme


March 2009

Delivery Vehicles – ground rules

• The delivery vehicle is means by which investment and other objectives are delivered

• They can take a number of forms - we were open minded about the form and structure

• We started by assessing and then defining the relationship between the contracting parties, their roles, responsibilities and obligations….and appetite for risk


March 2009

Risk Allocation

"Risks should be allocated to the party best able to manage them"

• Land assembly

Principles Delivery

• Affordability

• Value for money

• Access to Housing Grant

• Outline Planning

• Commissioning

• Detailed planning permission

• Design

• Construction

• Finance

• HP Inflation

Strategic

• Volume risk (demand )


March 2009

Delivery Contract (s)

LCHO100% RSL

Private HousingHousing for Rent

(50%Almo 50% RSL)

Bolton Council

A Delivery Model

Land released in phases

Financial Guarantee from development based on volumes and sales values

Borrowing secured against guarantees – to fund next phase of

land assemblySPV (ALMO +BCH)

Tenure and Mix


March 2009

8. Key Considerations for Projects

• Fully understanding the vision, objectives and aims of any project and how that translates to delivery

• Assessing options objectively• Maximising key outputs• The importance of asset prioritisation• The strength of partnerships• Developing appropriate delivery and procurement structures• Innovation and different approaches to funding• Managing risk• Flexibility• Self sustaining• Local solutions for local issues v national replicability


March 2009

9. Questions and Discussion

Neil Rutherford

Assistant Director


[email protected]

07736 770 904

0131 524 2452


This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2009 PricewaterhouseCoopers LLP. All rights reserved. 'PricewaterhouseCoopers' refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

pricewaterhousecoopers llp pwc new and innovative approaches to funding development mixed and...

Documents

network slide

discussion slide

funding development

economic growth slide

funding flexibility

working definition of

pwc funding innovation

public sector infrastructure