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Sharing the Risk to Deliver Infrastructure First

This is one in a series of blogs written by members of the Housing & Place Delivery Forum (HPDF) – a CaCHE-led knowledge exchange initiative, which brings practitioners and industry experts together around a common goal: delivering more, high quality homes and creating places that work for everyone in Scotland. The blog adds to and builds on some of the key recommendations from our recent co-produced report, Delivering More Homes and Better Places: lessons from policy and practice in Scotland

 

Delivering large scale development proposals is fraught with challenges. One of the toughest is delivering the infrastructure that supports not only the development but also the day to day lives of the people who use it.

In its summary of the key practical lessons for housing and place delivery in Scotland, the recent CaCHE report, Delivering more homes and better places, highlights how large-scale development proposals require a substantial commitment to up-front investment in infrastructure. It asks that where there is a wider public benefit, the public sector should support and participate in the funding of this much needed upfront infrastructure, that is essential to the creation of high-quality places and sustainable resilient communities.

Scottish Futures Trust (SFT), working with our key partners, has grappled with this issue and collaboratively delivered a series of successful outcomes, using innovation to drive change and ensure delivery of key strategic developments for our partners.

Across Scotland, there are great examples of local authorities using their borrowing powers to deliver the piece of the infrastructure jigsaw that unlocks development. Having borrowed – usually through the Public Works Loan Board – to invest in transport, drainage, or education infrastructure, they then repay the debt accrued with Section 75 contributions that flow from subsequent development over the development period.

Taking this Infrastructure First approach, Local Authorities – along with other key agencies – play a critical role in opening-up sites and delivering placemaking. That said, there is no guarantee Councils will be able or willing to do this in future. We need to innovate and consider the options to do things differently.

The Need for Innovation

The impact of COVID-19 on local authority budgets is severe. Relying on local authorities to forward fund enabling infrastructure in this environment could be a tall order, as they will be even more mindful of the risk to their revenue budgets if the value of Section 75 repayments fails to keep pace with the value of their debt repayments, which are fixed.

This is why greater innovation around sharing risk between the public and private sector is needed if an Infrastructure First approach – as advocated in the National Planning Framework 4 Position Paper, the SFT/Scottish Land Commission report Enabling Infrastructure, and the Infrastructure Commission of Scotland findings – is to be delivered on the ground.

Winchburgh & Private Sector Guarantees

The SFT was closely involved in developing a unique tri-partite risk sharing arrangement that allowed a non-denominational high school to be funded at Winchburgh. This unlocked the delivery of 3,450 homes on the site and 15,000 homes across West Lothian, which were affected by education constraints.

A guarantee from the Scottish Government was the headline-grabbing element of that deal.

However, the guarantee that the landowner put in place was just as critical to making the overall package work. It is this element that could be replicated with effect elsewhere.

As described in the business case, to give West Lothian Council the confidence to fund the school, Winchburgh Developments Ltd provided a revolving facility that was worth the equivalent of one year’s debt repayments. This pot of money could be drawn on if the Section 75 payments dipped below the level West Lothian Council needed to repay their loan. If used, the facility would be repaid once surpluses were generated above the baseline of repayments. The landowner also guaranteed a baseline payment for the first two years.

Ultimately, by thinking differently, and understanding what each ‘could bring to the table’, the key partners enabled delivery.

A Model for Scotland

Local authority caution around forward funding enabling infrastructure is understandable. There is no way to compel a developer to develop and it is the Local Authority that will be responsible for fixed debt repayments if homes aren’t built.

The greatest asset a developer or landowner has is their knowledge of the market, belief in their development and their confidence in its delivery. Translating that into a guarantee of baseline Section 75 repayments for the initial – highest risk – phase of development and then into a floating ‘pot’ of money to cover future eventualities results in a genuine risk share between public and private sector.

Infrastructure First is undoubtedly the way forward for coherent, cohesive places. The public sector has a major – and exciting – role to play in delivering this. However, innovations like the one described comes from a willingness to think about things differently. This can result in a genuine sharing of risk as both parties bring their respective strengths to the table.  Innovation from collaboration can really deliver the right infrastructure in the right place at the right time, delivering more homes in more ways.

Photo: Shutterstock (By Pand P Studio)

Views expressed by the author may not represent the views of CaCHE.

 
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Date: January 20, 2021 2:31 pm

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