Complete settlements, delivered across the city region around London, can meet the capital’s growing housing need. City experts Stephen Engblom, Andrew Jones, Charles Ledward, and Cristian Bevington discuss findings from the latest in a series of ground-breaking financial innovation labs focused on enabling significant housing delivery with public and private finance across administrative boundaries, that can support the development of the complete settlements London needs.
According to the Mayor of London’s current London plan, London is expected to see significant population growth of up to 10.11 million by 2036 — exacerbating existing infrastructure and social stresses in a city already under pressure to improve its long-term resilience.
In the capital, land is scarce and housing extremely expensive and unaffordable for most Londoners. Together, this makes meeting the Mayor’s ambitious affordable housing plan challenging for developers, especially in a volatile housing market where many larger sites require advance infrastructure to unlock their potential.
The London city region
As a result, more Londoners are living further from their jobs. This, in turn, intensifies pressures on the surrounding city region (approximately a one-hour commute from central London).
Broadly, a single economic area with shared interdependencies, the London city region is the largest and fastest growing part of the U.K. However, because it crosses multiple administrative areas, cooperation is required to reach long-term strategic agreements for strategic community and infrastructure investments.
A national challenge
This housing crisis is not just a metropolitan London challenge. The U.K. has the highest property prices among Organisation for Economic Co-operation and Development (OECD) countries. Coupled with a significant deficit of 4 million homes and predicted need to deliver 340,000 homes annually up to the year 2031, the scale of the national challenge is significant and only continues to worsen.
Using innovation to deliver housing across the London city region
The Milken Institute, in collaboration with AECOM, convened its third in a series of Financial Innovation Labs late last year, in London. The Lab examined innovative opportunities for public financing, policy strategies and private-market collaboration to accelerate the delivery of complete settlements across the London city region and meet growing housing need.
Complete settlements are high-quality communities offering a full range of housing tenures at different affordability levels and robust social infrastructure, including schools and hospitals, which are well connected to an economic hub. Essentially, the new community cannot be a lone commuter hub disconnected from the broader economy.
The Financial Innovation Lab brought together key housing delivery stakeholders, including developers, policymakers and investors, to identify significant housing delivery opportunities across the region.
A complex challenge
Lab participants agreed that the development of complete settlements provides the density and critical mass needed for more sustainable, transit-oriented communities. But also recognized the scale of the challenge and need to deliver transit-accessible, economically vibrant, and resilient complete settlements that deliver homes and jobs, and create communities.
These developments are multilayered and complex to deliver, especially at the scale required. A lack of coordinated land assembly approaches and misalignments between infrastructure investment and housing development also further complicates these types of projects. Participants identified the opaque nature of the development consenting and procurement process as a significant risk that contributes to the overall cost of development and exacerbates the need to secure appropriate project financing.
Participants also agreed that current approaches to community engagement are often insufficient for large new complete settlements, which leaves existing communities and neighbors alienated from the process and further hinders development.
An approach to deliver
Through discussions during the lab, participants identified six key recommendations to help secure the finance, progress and affordable homes the London city region needs.
1/ Create a regional spatial strategy.
Regionally, this requires a strategic framework that brings together stakeholders to set a direction that will meet housing need and associated infrastructure requirements for today and the future. Leveraging technology, a common evidence base and scenario testing will ensure the alignment of transportation and utility/facilities investment, economic activity and housing development, and the successful creation of complete settlements.
2/ Facilitate appropriate land assembly.
Land assembly is a significant risk to developers and is a significant upfront development cost. One solution to this issue is to accelerate the process, providing clear guidance on best practice alongside government support to facilitate the assembly of complex sites, through land-use policy and land-value uplift capture mechanisms embedded in updated legislative tools. Establishing an approach through a regional framework that balances the costs and benefits for local communities, land owners, local authorities and developers will assist in the efficient and timely delivery of complete settlements.
3/ Improve infrastructure development and coordination.
There are significant public and private infrastructure investments, which have already been made or are in the feasibility testing process, that — if paired with sustainable urban extensions or new settlements based around transit-oriented hubs — would create meaningful economic opportunities. Flexible price increases or new public and private financing incentives offered to utility providers to increase investments beyond the typical five to seven-year programs would enable greater coordination with transportation investments and housing developments. The government also has a role to play in offering funding guarantees or infrastructure grants or loans for early infrastructure investments that, when made at the beginning of the development process, would drive additional private investments as well as better planning and coordination.
4/ Establish a pilot governance body to ensure agency coordination and execution.
Improved government and local authority process would remove unnecessary costs and delays and, if combined with an expedited and better resourced development approvals process, would reduce risk for both large and small developers. The establishment of a new pilot governance body that operates within an agreed upon regional framework, with development corporation powers, would bring forward complete settlements.
Support from a governance body and an agreed infrastructure plan — with conferred ministerial-level leadership and advocacy — is needed. The pilot governance body could act as a project champion and facilitate permitting and coordination, overcoming resource constraints at the local level.
5/ Strengthen community engagement.
Effective community engagement from the start of the design and planning process through to project completion ensures that projects are matched with their locales, have community understanding and longer-term buy-in, and are less likely to stall at the planning stage. New technologies can be used to improve community engagement through 3D schematics and visualization tools.
6/ Establish new models of project financing.
A series of financing models were developed in the Lab that could catalyze development and support entry into the development market. These should be explored further.
- Leverage land assets through land lease opportunities supported by a regional fund — similar to real estate investment trusts (REIT) — that would issue equity and project financing. Tax Increment Financing (TIF) was identified as having an enhanced role in capturing land value uplift, and used more widely than the current project by project application.
- Ensure patient equity or long-term capital and lower debt costs through public-private equity funds, where the government provides financing as equity into a fund and agrees that partners in the fund take their returns first. An infrastructure-revolving fund that allocates traditional government grants as low- or no-cost loans would allow for subsequent projects to be supported upon repayment. An infrastructure bank could operate in a similar way.
- Offer tax credits and yield enhancements that attract patient equity or long-term capital through tax credit models that provide tax-incentives to support small- to medium-size enterprise (SME) developers, investment in complete settlements and affordable housing. SME developer loan guarantees would enable smaller developers to participate in a market that has traditionally been reserved for master developers due to the cost of borrowing.
Successful complete settlements
The lab helped to advance regional solutions and amplified financing models to catalyze the development of complete settlements to meet the London city region’s growing housing challenge. Lab participants emphasized the importance of coordination between stakeholders and investors, maximizing the beneficial returns from successful complete settlement development for local communities, local authorities, and the investment community. We hope to continue to work with the key stakeholders to realize these solutions to accelerate and bring these regionally significant projects to life.
Connecting the dots to address the gap
The London Lab was the third in a four-part series of the Milken Institute’s signature Financial Innovations Lab® program, hosted in collaboration with AECOM. The series examines ways to engage and accelerate new forms of capital that attract investors to the infrastructure space and explore innovative value capture mechanisms.
By bringing together interdisciplinary leaders from government, research bodies, financial institutes and industry experts, we generate market-based solutions to overcome a city’s resilience challenges. The series provides the opportunity to leverage a diverse pool of knowledge that can help expedite and identify new, innovative ways of funding impactful infrastructure projects.
The series is designed to respond to this need by focusing on a single case study per city — a critical resilient urban infrastructure project or program that lacks a clear path to full funding. The next lab discussion explores recent infrastructure development and new investment vehicles in New York City and previously in Los Angeles and Chicago. Following each lab, an executive summary that encapsulates the lab discussions and recommendations is produced.
Download the full London lab executive summary to read now.
The Los Angeles lab executive summary is available here.
The Chicago lab executive summary is available here.
Financial Innovations Lab is a registered trademark of the Milken Institute.
Banner image: Eddington, Cambridge, UK. AECOM’s Complete Community Masterplan. Source: Jack Hobhouse.