Public & Private

The Office of the Deputy Prime Minister wants market renewal pathfinders to use innovative and ambitious approaches to tackling low demand.

One innovation they could certainly learn from is Glasgow council's recent transfer of 80,500 homes. Scottish local authorities do not have access to the housing private finance initiative or arm's-length management funding, so Glasgow went for a transfer that combined £725m of private finance and £674m of public sector support. Although Glasgow Housing Association is the initial owner of the stock and charged with investing in the properties, the ultimate objective is community ownership – to be achieved through second-stage transfers.

What can the pathfinders glean from this? First, Glasgow Housing Association is designed to address investment in public sector housing, including the demolition of unsustainable stock and, with funding from the Scottish Executive, to provide financial support to owner-occupiers (often called leaseholders in England) to invest in their properties – thereby facilitating cross-tenure housing regeneration.

Second, a network of 78 local housing organisations has been set up. These will provide local input for the development of local management investment plans, securing community support for future regeneration of the area.

Third, the council, the Scottish Executive, Communities Scotland (the body that regulates Scottish social landlords), Glasgow Housing Association and private funders implemented a funding structure that would accommodate second-stage transfers for community ownership and a dynamic business plan to react to future changes in demand.

Finally, the structure of Glasgow Housing Association and its relationships with other key stakeholders recognises that a new registered social landlord with no valuable assets or reserves is unable to accommodate a significant degree of financial risk.

Recognising that some risks have to remain with the public sector, long-term strong relationships have been put in place with the Scottish Executive, Communities Scotland and the council to ensure the risk is shared. In addition, the public sector agencies working on Glasgow's regeneration are investing in education, employment initiatives, health and transport to ensure a joined-up approach – another requirement for the pathfinders.

The pathfinders, too, could develop innovative structures to facilitate private sector pump-priming coupled with private equity and debt finance to fund investment, generate lasting value and sustainable communities.

Ernst &Young has been involved in several schemes where large developers and financial institutions have been prepared to invest equity in housing and commercial regeneration schemes.

Subject to rigorous controls on the transfer of risks and rewards between public and private investors, the unique opportunity provided by pathfinders can be grasped to develop new structures.