Liveable Cities: Housing, Heat, Mobility and Public Realm Investment – Investment Summit Write Up

This panel features Eve Roodhouse, Director of Strategy and Policy for the Local Government Association; Tom Riordan, Growth Envoy for the Chancellor for the North of England; Ciara Shannon, Green Finance Leader at the North West Zero Hub; Ryan Jude, Programme Director at the Refinance Institute; and Peter Henry, Company Director at Harworth.   

This next session looks at infrastructure for liveable cities with reference to heat, mobility and public realm investment. The room, once again, is engaged and ready to go as the panel take their seats.  

 

The role of government in helping to create investable pipelines  

Eve takes the opportunity to reflect on the role that government plays when creating investable pipelines and the importance of having strong leadership in place. She explains that the role of local authorities is often underplayed and that devolution has provided authorities with opportunity.  

She said that we need strong leadership, clear vision and a focus on evolution across the whole country if we are to deliver growth. It’s about how local authorities, as part of combined authorities, can come together and seize the opportunity.  

 

Barriers to creating equal cities and investable propositions  

Ciara – thinking about so many things at once is the biggest barrier. You have to consider an approach that is project by project. We need to look at liveable cities as a place-based investment framework. We need to consider lots of different projects at the same time.  

I must commend the Greater Manchester Good Growth Fund, because they have thought about a wider scheme of works that is brought together in their £1 billion fund. They are looking at housing, infrastructure, regeneration and low carbon, and to already have more than £1 billion behind this is exceptional. 

What we need to consider is what are the KPIs for a fund and what are the different risk profiles and returns for each project. It’s very complicated.  

Ryan – It’s quite simple how investors look at this, it’s risk and return. It’s about looking at each risk and then how you manage those. National and local government will set top level targets but to mobilise the money you need to look at the projects on the ground. We have to look at everything as a separate piece – we call them transactions. It’s difficult, but the work needs to be done to go through each transaction and see what makes them too risky to invest in.  

Every single asset that we are looking at is ever so slightly different. So, if we look at retrofit, it doesn’t really have a revenue stream, but if you are a local council, you can aggregate it with things that do have a revenue stream making it more investible.   

Peter – long-term regeneration is complicated. There is no getting away from it. By its very definition, if you’re doing something that’s infrastructure or retrofit or place related, it’s usually long term. And it’s very difficult to move away from that.  

Getting certainty of investment proposition over a long period of time, over a complex thing, which, at the start, you’ve no idea really what it looks like, is exceptionally difficult. 

In my experience, it’s about working out at each stage of the project what you are going to do and make it more manageable and understandable for investors. You also need to consider the non-monetary value.  

At inception the risk is enormous and if you try to wrap everything up then it’s impossible. When you get to the infrastructure stage – you can have an amount you can invest and you can work with public bodies to get that investment delivering a pay back, which delivers confidence both to us and other private investors.  

When you are starting to deliver physical buildings, you can then start to attract further interest. You must chunk it into manageable propositions or it’s just too complicated.  

 

Funding retrofit at scale is a different challenge to regeneration around a land asset. How do you create conditions for people to take risks in that kind of context? 

Tom – I think it’s definitely about trying to set a clear strategic direction and the National Wealth Fund have done that with the new strategy.  

I have visited Greater Manchester and seen the great work that Andy Burnham and Caroline Simpson have done with Victoria North and the Sister Development.  

These are examples of how you can take those investable propositions and make them long-term visions. It’s about getting the fly wheel turning. There is a lot around retrofit and housing, but it requires the pubic sector to take a longer-term and more patient view than the private sector is able to.  

That gives a foundation for private sector to come along, structure and finance the deals to make a difference.  

There is also a cultural thing about getting a reputation for setting out a plan and doing what you say you are going to do. It delivers a big boost of confidence for communities and the private sector.  

Ryan – Doing that goes so much further. If you say you are going to do something you have to do it. The National Wealth Fund has provided guarantees around investments that private investment perceived to be risky.  

That’s a difficult word to say, but I use perceive because they haven’t yet invested in this thing, they don’t quite know what the risk profile is. And so social housing Retrofit is one that the national government provided approximately £1.5 billion for.  

The theory of change there will be that banks, over time, will have the data they need to say that these guarantees aren’t as risky as they perhaps perceived them to be.  

 

Can you share examples of where place-based investment structures are working from? 

Tom – there are so many examples of place-based investments that have worked. We worked on retrofit and some of the findings that came out is that the role of the council is really important in giving residents confidence.  

Residents know the council won’t go away and so there is a perceived trust with them. That brand, alongside initiative, is so important.  

In Solihull there has been a good investment by the National Wealth Fund to allow infrastructure to start and investments to be made. The same happened with Leeds Pipes, which was energy from waste and has been really successful as a public private partnership.  

The state needs to make the first move and to commit the funds so that others will follow. It then becomes self-sustainable.   

Peter – it’s having a long-term strategy but being flexible with that. In our example, we have had to think about how things can change. While we would once build with heating such as gas, things have changed. We’ve had to keep that in mind and have had to retrofit as times have changed.  

There is a completely different outlook to sustainability now-a-days, with EVs, air source and heat pumps. As a private developer, it can be really difficult, we’re having to think about retrofit.  

When you have long-term strategies, you have to factor in change, because things will evolve over those timescales.  

 

What lessons can be learned from other parts of the country?  

Ciara – I’d like to go back to the Preston model, which was 2006. There’s been a long history of investing locally, but actually it was after a huge, large scale infrastructure project where Preston Council made it clear that it wanted to invest locally.  

It recognised it would need local investors and wanted to understand what has now become place-based investing. The North West Net Zero Hub is also impressive. It oversees the decarbonisation for the North West and under that umbrella brings together the private sector.   

There are all sorts of different ways of doing it. One is convening. So, this entity has been very successful with the industrial strategy that leads them. They have secured around £23 billion worth of investment right now, and they’re looking to get to £207 billion by 2030.  

As a successful example, they are being innovative by looking at hydrogen, at CCS, storage, and transport. They’ve found ways to access significant funds by thinking differently.  

 

Looking at the National Wealth Fund, what are the aspirations for the next few years? 

Tom – So, there’s £28 billion to deploy that should lever in £100 billion. We are just about a quarter of the way through that, and we’ve safe guarded 70,000 jobs. The target is to secure 200,000 jobs.  

There are some really important anchor investments that they’ve made in the clean energy industry that have started and you’ll see more of that coming through.  

There are different elements to how the strategy will bring regional roles and clean energy approach together.  

One is strategic partnerships with the main mayoral authorities. So yesterday, there was an announcement that the National Wealth Fund would become a fully paid member of the Good Growth Fund.  

This means that it’s actually grown, as we speak, from a £1 billion to £1.5 billion investment, which is really good, and there’s a lot of really detailed work went on to make sure that this investment pipeline was investable. 

There’s an element of good practice here. Thought leadership and sharing of what’s working as a knowledge exchange is going to be developed. It will be online and will be very easy for people to tap into. That’s something I think is really exciting in this space.  

 

What about locations that don’t have a Mayor, how do they access investment opportunities like the North West?  

Tom – I have regular conversations with these places because they are feeling a bit left out. My work across the North is to make sure they don’t feel like that. I was talking to Lancashire yesterday. They have huge capability in defence and advanced manufacturing, so we’re going to work with them to try and make sure that defence growth deals that are coming through from the industrial strategy hit that part of the world.  

Then there is the East Coast, which has huge opportunity with the Tees Valley and Northeast to take advantage of the offshore wind of carbon capture and storage. If you’re going to do CCS anywhere, if you look at the economic geography of that part of the world, you would do it there.  

It’s all about collaboration and how these places are going to have to be very focused on how they put themselves forward to government.  

 

There’s a lot of work to do to bring all partners together to deliver the investments required  

Ryan – we need £1.3 trillion to get to net zero in this country, so we need to be looking at what is the appropriate type of finance to meet with this. A government backed consumer loan may be ok for some, but a green mortgage might be better for others.  

That’s just one example where you don’t always need funds from government to support you. From local authority it’s the day-to-day revenue funding for those that are working at the councils.  

One of the biggest blockers has been annual stop, start annual funding bids that councils have had to do. The integrated settlement is a three-year multiyear funding, which means that local governments have more flexibility. 

If we were setting up devolution today, everywhere would be set up like Greater Manchester.  

With its interest settlement and the agreement with the National Wealth Fund, it’s going to be really interesting to see how it functions, because that should serve as a model for the new mayor or command authorities that are being formed. 

 

Reflecting on liveability, how do we ensure investment supports people? 

Ciara – you’re talking about good health and air quality, which is social impact. You’re also talking about low carbon heat. It’s the environment, social and governance and how it is coordinated.  

The crown estate has introduced a social impact side to their lease agreements. They have to think about how their investment is going to positively impact the port and the local areas.  

This is significant for some of these areas that are in real need of financial regeneration.  

 

Has livability changed and how you think about it? 

Peter – yes, because we didn’t used to do it at all. It’s always been quite difficult for us to make places that have the same values as others. So, for example you can’t develop properties in Doncaster that will have the same value, health benefits and the same transport connectivity as elsewhere.  

So, in terms of 1,000 homes that we might deliver in Pontefract, the value of that is half what it might be in Cambridge, and therefore the ability to deliver the quality developments is a lot lower. 

We are committed as a business and we have done the work to identify the costs of that. With developments you have to put the cost of anything that you add on top of the initial costs. While the value of the thing you are creating doesn’t change, the cost does, and so you squeeze the margins.  

Tom – The thing I have tried to do is to stop starting from the negative. We need to come out of the trenches. If we take an asset-based approach and think about what we are good at, what we can build from and what makes us different there are still investable propositions.  

If you take Cambridge, they have lots of challenges that we don’t have here. We have full mayoral coverage, so we have convenient power, that other areas don’t and most councils are supporting growth and we need to make the most of that. 

 

What would be your one thing that would put in place to mandate?  

Ryan – being simple. And specific transactions.  

Ciara – importance of triage – start with hubs and how they are helping local authorities. Understanding more about new horizons. Coming back to accelerators and making things more investable.  

Peter – less regulation and more regulation. Less from an energy perspective. More regulation for carbon emissions from the simplistic level of standardised reporting. This would allow accurate measurement and reduction.  

Tom – Fiscal devolution. Rachel Reeves made an important speech this week to open the door for a roadmap to be produced about how the budget could work. It’s not about taxes or thresholds or rates, it’s about using national taxation and devolving it. This should ensure that local areas would have the certainty of income streams allowing them to plan in a way that will give them peace of mind over a longer-term. It is a complete change from anything we have done before.  

And so, this session came to an end. Another very insightful talk that left the audience with a lot to think about, not least in terms of a place-based investment approach for each region throughout the country.  

It’s certainly not a simple task but with successful blueprints from regions such as the North West, it may be easier for some to apply the same models to deliver similar benefits.  

 

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