Our columnist considers how the government's regeneration agency could help developers to sell homes and buy land
Crucial housing regeneration projects that face cancellation could be saved if the government were to take a number of practical steps. A collapse in residential property prices and jump in borrowing costs has meant that a number of regeneration schemes that would have delivered much needed social housing have now either been cancelled or put on ice.
As part of its major recovery package for the residential property market the government committed itself to supporting regeneration schemes that are at risk of failing. Projects are stalling either because developers fear that they will not be able to sell units or because there are insufficient funds for the development. The government, through an organisation such as English Partnerships, has a range of possible options to tackle both these fundamental problems.
English Partnerships (EP) could potentially forge agreements both with developers and with potential buyers that would ultimately benefit both parties. These could comprise of exit provisions for unsold units, or assistance through forward funded land acquisitions.
Providing limited guaranteed exit routes for developersEnglish Partnerships could enter into an agreement with developers to help fund the buyout of any units which have not sold within a certain time frame after completion. This could be via English Partnerships directly purchasing any unsold units, by underwriting sales to third parties or by helping to provide gap-funding to sell the properties through shared ownership.
English Partnerships could also guarantee a low minimum return on a percentage of the units being built by the developer with surplus profits over that minimum being returned to English Partnerships.
Making land acquisitions possibleEnglish Partnerships could also help developers through the first phase of developments by funding land acquisitions. English Partnerships' investment would be protected by taking a legal charge over the land. Once the project is completed, the developer would get the first slice of the returns to cover their building costs and allow for a small profit element. English Partnerships would take the balance to repay their loan.
A mechanism could also be put in place to ensure that the profits over and above the base level returns are shared fairly having regard to the larger share of risk being taken by the public sector.
Funding assistance can be reviewed on a phase by phase basis depending on the results of an appropriate viability test. So as the market improves, the degree of risk taken by the public sector can be reassessed.
There is still a desperate need for affordable housing and for regeneration areas to see investment now, not in several years time. We need to put in place measures to salvage those projects that are in trouble. There are things that can be done to address many of the problems that the credit crunch has thrown up. The answers may require the public sector to take more risk than it has had to do in better times. But these solutions are not untested. They are all in some way aspects of deals that have been done in the past.
Jeremy Hunt is a partner in Trowers and Hamlins' housing projects department.