Major urban regeneration programmes in the UK

by pilinleon (student)

University Degree Architecture, Building and Planning

A CATALYST IN THE DEVELOPMENT PROCESS

In the cities, it is the largest accumulation of people (and their activities relate to the area), the production and consumption of goods (taken from field and/or industrial processing), and the services that can eventually damage areas of the cities. Moreover, it has been observed that our cities are constantly growing and also modifying some of its parts due to individual or collective initiatives that seek better conditions for our activities but deteriorating the infrastructure and the quality of the urban spaces ignoring the consequences that it carries out.

Also, the damaged areas of a city changes demand that they become true integral transformations. These changes cannot be achieved with single projects that are not part of a strategy that goes beyond an intervention that aims to promote definite improvements. In this point, urban regeneration is a tool that has proved efficient and has become, for many cities, project spearheaded processes that have reached such achievements, exceeding original expectations. At the end, it is the responsibility of the authorities to arrest the deterioration of parts of the city administrations, and citizenship, support and encourage this type of intervention.

According to Roberts and Sykes (2000, p. 17) urban regeneration has been defined as a:

…comprehensive and integrated vision and action which leads to the resolution of urban problems and which seeks to bring about a lasting improvement in the economic, physical, social and environmental conditions of an area that has been subject to change. (Roberts et al 2000, p.17)

Tallon (2010, p.5) declared that the concept of “regeneration aims to enhance skills, capacities and aspirations to enable them to participate in and benefit from opportunities” and by all means “…aims to improve economic competitiveness in terms of business performance to create more local jobs and prosperity” highlighting the fact that the enhancing the general appeal of a place attract people and business. (Tallon 2010, p.5)

Both definitions states that urban regeneration is a process integrating environmental aspects, the physical-urban, social and economic alternatives proposes to improve the quality of life of the population in any defined area. In this case, urban regeneration is generally is understood as the catalyst for a transformation aimed at promoting comprehensive improvements in blighted areas.

Changes in a city always exist as living systems, change and evolve. The changes are however unpredictable and may not necessarily be good. London, for example, has gone through several cycles and continuous urban for one reason to another that have promoted negative changes in the urban structure of the city. Natural disasters, fires, mismanagement, economic recession, etc., can trigger negative changes in cities. However, there are perceived as “key moments” that can break these cycles urban poor and begin promoting positive transformations.

In the UK regeneration is defined as the set of activities that seek to address the economic decline, social and physical development of areas where the market cannot operate without the support of the Government. Urban regeneration focuses its intervention in fostering new urban central in promoting the social mix of nature and social initiatives, such as improving the conditions and quality of life of vulnerable and disadvantaged.

Urban regeneration is configured as a key comprehensive and substantial urban development. Urban regeneration are targeted on deprived urban areas, disadvantaged or social housing generally incorporates public action measures direct and indirect employment and training, but also to reinforce social cohesion, crime prevention, regeneration or economic incentives. The success of any urban regeneration programmes is the evaluation through the area based-approaches which combines economic, social, cultural and environmental aspects. These approaches can be analysed through a property-led physical approach, a business-driven approach, an urban design perspective, community based socio economical approach. Although many approaches have been introduced in different areas, it is evident that the public participation in the area-based approach is also important to minimise the problems in certain areas and many strategies with different approaches seem to be the key for urban regeneration.

Regarding the competence framework in the UK is the Department for Communities and Local Government (CLG) which leads to the different agencies of urban regeneration policy, promoting local development on a more integrated approach to regeneration, with an orientation toward people and allowing local authorities flexibility to use the funds from their specific projects.

In the field of urban regeneration involved mainly the Housing and Communities Agency which is the national agency for housing and regeneration. The HCA is responsible for both the provision and delivery of social housing and the recovery of degraded lands, one of the agencies largest regeneration and development in Europe. This agency was created following the Housing and Regeneration Act joined two British national regeneration agencies known as the English Partnership and Housing Corporation leading provider of social housing in England.

The United Kingdom does not have a specific legal framework for intervention in urban regeneration, however, there are many different approaches outlined in the political, particularly highlighting the Planning Policy Statements (PPS) of the British Government to establish a framework for guidance reference for urban regeneration.

It is also interesting to note that it has developed a deprivation index that helps measure deprivation by area. This index combines a variety of indicators of need among which include income, employment, health, disability, skills, training, access to housing and public services, environmental quality and crime rates. You can find very disadvantaged areas in all regions, although the highest rates of deprivation often occur in large metropolitan cities.

In relation to the development process Wilkinson and Reed (2008, p. 3) identified eight main stages which are initiation, evaluation, acquisition, design and costing, permissions, commitment, implementation and let/manage/dispose. According to them (Wilkinson et al. 2008, p. 10) there are a variety of important actors who each contributes to the outcome of the property development process and who may have very different perspectives and expectations in each stage of the development process.

It is not easy to define the actors involved in urban regeneration and its coordination is also problematic because of the many organisations involved in delivering ...

This is a preview of the whole essay

It is not easy to define the actors involved in urban regeneration and its coordination is also problematic because of the many organisations involved in delivering these, being the form of area-wide partnerships the most complex to coordinate as it includes many representatives from the public, private, community and voluntary sectors. (Tallon 2010, p.7) Nevertheless, just identifying them we can “…develop an understanding of property development processes which combines a sensitivity to the economic and social framing of development strategies with a fine grain treatment of the locally contingent responses of property actors.” (Guy et al. 2002, p.1471)

Landowners and developers play an important role in the development process. While the landowners can play an active or passive role the developers operate as either traders or investors whose main purpose is to make a direct financial profit from the process of development. (Wilkinson et al. 2008, p. 11)

Also, the financial institutions (such as pension funds and insurance companies or other financial intermediaries) have a very important role which is motivated by the maximisation of returns adopting a conservative approach with every investment in order to minimise risks. (Wilkinson et al. 2008, p. 132)

The main actors responsible for the financing of urban regeneration projects are often public-private agencies through direct investment in social housing and subsidies. As outlined in the rehabilitation of homes and buildings in the UK there are no tax benefits for such and interventions.

The Home and Communities Agency also manages the Coalfields Programmes whose overall objective is to address the economic depreciation, physical, social and environmental development of the coalfields. It works together from Local Development Agencies and other local and private sector. This is a program that tries to educate the population living in the area to fill new jobs in the community accurate and supports the creation of new businesses.

Other urban regeneration program to emphasize the UK is the Housing Market Renewal Pathfinders that aims to address low demand in areas that have suffered large-scale abandonment. Acts on impoverished areas through actions aimed at improving neighbourhoods and communities. This program seeks to narrow the gap in housing prices in this area and the regional average and eradicate the problems of low housing demand. Such interventions include actions of property acquisition, renovation, demolition and new construction.

Table 1 Major urban regeneration programmes in the UK

Not only financial institutions are the primary funding available for a development but also there are a number of financial grants available to developers and the public sector to develop derelict or rundown inner city sites and buildings from the government and EU. (Wilkinson et al. 2008, p. 78) However, to guarantee the development subsidised through regeneration grants the project must comply with the EU rules about the eligibility of giving financial aid and about contracting out public works, and by the interest in the practice of ‘clawbacks’. (Needham B et al 2003, p. 341)

Needham et al. (2003, p. 319) concluded that attracting investment and finance into regeneration areas poses particular difficulties and frequently relies on strong public sector commitment in order to lever private sector activity.

“The way in which investors perceive markets, make decisions and construct investment strategies affects their actions within property markets” (ADAIR et al. 2003, p. 1077). In this sense, developers might hesitate to invest their money because of the difficulties inherent in commercial development in existing urban areas. Then the public body will want to know if it can stimulate the development. (Needham B et al 2003, p. 320)

Developers and investor always take relative risk into account, but most of them will do several comparative analyses, which involve physical and locational attributes, and the residual land value appraisal that will end up in a financial modelling to identify the feasibility of the project. This financial model is the one of the ways that developers have to measure the performance of their projects.

The difficulties inherent in any development might be associated to the regeneration locations which “are often characterised by economically obsolete land uses, derelict structures, outmoded infrastructure and contamination, all of which increase investment risk and involve high reclamation costs for potential developers” (ADAIR et al. 2003, p. 1066). Once the site for regeneration is chosen, developers have to create a new image to enhance the attractiveness of the location, investing money in infrastructure and creating open spaces or improving the accessibility. It is confirmed that good urban design enhances the economic, social and environmental value. Development sites can benefit from this and it will be shown on the higher market rents making the project feasible (Needham B et al 2003, p. 321-322).

Adair et al. indicated that:

“Public-sector intervention in regeneration locations may not only seek to stimulate derelict land or property but may also attempt to create new land uses and submarkets. However, it is important to measure the success of a project not just by whether private property development is viable, but more importantly the extent to which the market for the product is sustained” (ADAIR et al. 2003, p. 1066)

Developers might be able to make a profitable development depending on market conditions and it can be done by selling the land prior to start of the expansion scheme and / or evaluating the profit generated on a base rent arrangement or a priority yield arrangement. Nevertheless if the development is non-profitable developers “must aim to contain cost, while maximising the benefits of occupation” (Wilkinson et al. 2008, p. 9). Certainly these scenarios whether a profit or deficit is obtained, present regeneration opportunities. In other words, from the view of the developer, the only way they can consider to build a development scheme is that market demand in which the development is conceived would produce a profit considerable in excess of the cost involved.

According to Isaac et al. “development in partnerships has the potential to bring synergies to a development; spread the risk between the parties and enables the participants to exert some control over the outcome (2010, p. 14). This is one of the many strategies used to get benefits from a regeneration scheme where a landowner, funder and developer agree to work together to realise a development scheme (Isaac et al. 2010, p. 85). Even more, there are many advantages for the parties involved who can negotiate the profits of the development scheme but assuming the same levels of risk according to their participation. Although a developers struggle to keep all the profits from a development scheme, they might consider partnerships’ associations in order to obtain a profit when this one is only the only way to obtain a return and it is usually associated to development schemes of a big scale.

Another aspect that needs to be clarified is The Community Infrastructure Levy (CIL) which is a new planning charge that will allow raising funds that can be used for the infrastructure needed such new or safer road schemes, flood defences, schools, hospitals and other health and social care facilities, park improvements, green spaces and leisure centres (DCLG 2011, p.3). Understanding that the charge of the levy in any development in the first moment is planned, will allow comprehending that the money spent on infrastructure could enable more developments in the future which means that the communities and developers are in a relation where everybody wins. Probably, developers don’t see it in that way but it is a planning obligation under the Planning Act 2008 but it depends of the local authorities to choose between this mechanism and the Section 106 (S106). The main difference between these two planning obligations is that the S106 is scheduled to be used in the site were the development is planned whilst the CIL is planned to be used for general infrastructure contributions and could be used in a wider area, even outside the immediate impact area where the development is planned.

There are many concerns about the figure of the CIL and how it will impact the regeneration schemes probably at risk of losing development schemes just because of the uncertainly risk that developers might confront in the future. It is known that the urban regeneration schemes are the most expensive ones because of the risk and complexity involved in these schemes. I wonder what will happen in the future with these schemes, probably they will end up in the financial burden but we will be never sure as if these schemes are not applied, there actual conditions might get worst.

One thing that regeneration brings on board is the fact of the social and public benefits through the enhancing of the physical and environmental quality of a place. Sometimes these benefits are not seemed by a strange in a community but in fact they are perceived by the local residents. However, some improvements are just perceived by the visitors. Probably, most of the regeneration projects might have not conceived successful until the pass of the years. Regeneration in future is thought to bring many improvements such as the economic performance of the area through the creation of sustainable areas where people want to live, can work and can have leisure place where to go. Even more, the new renovated places will attract with it more business investment to the area which the community can take an advantage. In this schemes, the interrelationships between the property development process is directly linked to the developer objectives which is to obtain a maximum profit that can only be achieved if the developer guarantee a social or public benefit for the site to develop. The most successful developments are those supported by local authorities so a good planning strategy for developers is to work in partnership with them, in order to obtain benefits as a part of a regeneration scheme.

At the same time I have written some information about the property development process in regeneration, I would like to introduce a report as a sample of the financial appraisal and regeneration implications.

SOWTHWARK BOROUGH DEVELOPMENT PROPOSAL

This report is based in a previous consultancy advise that the company Think Tank Planners Ltd has been selected by RMF Studios Ltd which is a competent property development company who wanted to buy a development site of 5 acres with the aim of developing it for mixed office/retail/residential use. RMF Studios expected to sell the completed development in three years’ time and wished to know its present financial value.

As a member of Think Tank Planner Ltd, I was required to estimate how much RMF Studios Ltd might expected to have available from the scheme to buy the plot of land (the residual land value) and whether there may be any financial resources flowing from the scheme that can be devoted to providing the local planning authority with planning gain. My client, RMF Studios required a spread sheet financial breakdown for a mixed use development consisting of office and housing development in a plot in the Southwark Borough which is included on this report. In this particular case, planning permission was not expected to present any particular difficulties.

According to Wilkinson et al (2008, p.32) the location of the site is vital for the success of a project and every site has its own characteristics. In this case, the London property market has its own characteristics and between them, the highest house prices and the mixes of uses are the most distinctive. London is, in many ways, an ideal location, and Southwark, which is a borough located in the south of London, covers areas of very diverse housing types, which have driven the changing demographic profile. In general, the site of the development chosen by RMF Studios Ltd has a mix of gradually expensive private sector housing which is perfect for the proposal. Also, this area is part of the London Plan, and benefits from a good transport system, which connects straight away to the dynamic economy of the City and central London, which make it Southwark accessible and it is considered as central south London.

Southwark Borough has a few town centres and local centres which are Elephant & Castle and Peckham considered as the mayor town centres of the Southwark Borough; then Canada Water, Bankside and Borough, London Bridge, Camberwell and Lordship Lane as the District centres of the Borough and then, the local centres are Herne Hill, The Blue, Dulwich Village and Nunhead.

Once chosen a location for the development, Think Tank Planners Ltd proceeded to estimate the value of land by subtracting total development costs from the total development value which is calculated through the market future lease rates and/or sales prices. This method is known as residual land value analysis and the residual obtained is an estimate of the value of the plot in Southwark Borough. Think Tank Planners Ltd ran two possible scenarios based on the sales prices.

For the first scenario, let us assume that RMF Studios Ltd is planning to build a mixed development in a town centre of 2.02 ha site (5 acre) in Southwark Borough. The site belongs to a well-connected borough with adequate transport access and they wish to develop 3,000 m² of office and 2,000 m² of retail offices. The rents according to the site area are high because of the location, and the rent expected for the area is the £400.00 per m² for the office space and £300.00 per m² for the retail office space. The gross to net floor space is set to a 90% and the other 10% is given to the common area. In this borough we can expect to have a low yield, let’s say 6% approx. and it represents the risk involved in the commercial development in Southwark Borough.

As the economy is emerging from recession, for the residential part of the development, RMF Studio has planned to build 20 one-bed flats which according to the residential open market can be selling for £170,000.00 per one-bed-flat while the two-bed flat can be selling for £280,000.00 and the scheme is planned to build 10 of this type of flats.

The development is completed and sold in its entirety in 3 years’ time. The cost involved in the construction of the office development is set to £1,500.00 per sq. metre whilst the retail office construction cost is set to £1,300.00 per sq. metre. On the other hand, the residential cost involved in this scheme is set to £68,000.00 for the one-bed flat and £71,000.00 for the two-bed flat. Also, the construction cost loan required for a three year scheme is expected to be around 11%, compounded annually.

For the second scenario, let us assume that RMF Studios Ltd is planning to build the same development in a local centre of 2.02 ha site (5 acre) in Southwark Borough also but in place where the future rental income would be a little bit less that the first scenario. In this case, the development of the 3,000 m² office space will generate an income of the £350.00 per m² and the rent expected for the 2,000 m² of retail office space is the £280.00 per m². The gross to net floor space is set to a 90% and the other 10% is given to the common area. In this borough we can expect to have a low yield, let’s say 6% approx. and it represents the risk involved in the commercial development in Southwark Borough.

Assuming that the economy is emerging from recession, RMF Studio has planned to build the same residential development where the 20 one-bed flats can be selling for £150,000.00 per one-bed flat and the other 10 two-bed flats can be selling for £250,000.00 in the area.

Same conditions apply than in the first scenario and the development is expected to be completed and sold in its entirety in 3 years’ time. The cost involved in the construction of the office development is set to £1,500.00 per sq. metre whilst the retail office construction cost is set to £1,300.00 per sq. metre and the residential cost involved in this scheme is set to £68,000.00 for the one-bed flat and £71,000.00 for the two-bed flat. Also, the construction cost loan required for a three year scheme is expected to be around 11%, compounded annually.

The profit expected by RMF Studios is at least of 15% and the fees involved in the RMF Studio Scheme are £45,000 for the legal arrangements, while the architects expect to obtain 5.5%, whilst the structural engineer claims 3% and the quantity surveyor claims 2.5% of the total construction cost associated with the scheme. A fee of £12,000 is requested for planning consultant, £25,000 for the cost involved in the planning application and £30,000 as a fee of the building regulations. Other fees as sales and contingencies are 2% and 6% (all percentages are of total construction costs).

Table 4 Second Scenario

The result of both scenarios are summarised in Table 3 and Table 4. The highlights of the summary below are:

The Office and retail office development in both cases provided the greatest value. Both offices and retail offices development 1 and 2 provide feasible zoning categories that allow for reasonable rates of return given average sales prices ranging from £280 to £300 per square meter in the case of retail offices and £350 to £400 per sq. meter for the office development.

The mixed use in the development generates positive residual land values, ranging from £7,625,082.00 in the second scenario to £10,220,811.00 for the first scenario.

The above residual analysis valuations indicate that the amount available for RMF Studio to purchase the land in this particular case for the scenario 1 is £10,220,811 for the proposal development in a central town in Southwark Borough. If the development is built in a local centre of Southwark RMF Studio should have an amount of £7,625,082 for the plot in this site.

Nevertheless both residual land value estimates presented in this report are suggested to a few specific assumptions about development program and building construction and any change in these suppositions could significantly impact the results. These estimates are a representation of the expected future conditions and do not mean that this estimates of land value are real in the Southwark area. An exhaustive analysis about the market land value should be incorporate to this report to be concise with the results.

The acquisition of the plot to develop is usually the first main financial commitment and one alternative that RMF Studio could apply is to find a partnership directly with the landowner in order to develop the scheme proposed. The ideal situation is to establish a partnership directly with local authorities of the Southwark Borough. There may be some authorities that want to take advantage of the RMF Studio initiative to link it to a regeneration scheme of the borough.

In the case of the land price, the analysis illustrates in a simple way the impact that the office and retail development is expected to support a higher land value than the residential use. The development of a mixed use proposal will be a plus to be considered by the local authorities to be involved as partners in the RMF Studio development scheme whether there may be a partnership where the land is given by the authority with a planning gain.

The association will bring both parts imply benefits to the developer as much as the expected for the community. Also, the development of retail offices will bring the possibility to employ a wide range of socioeconomic working groups which bring a social inclusion strategy on the benefits to be gained for the community. This scheme will bring new job and new house opportunities for the locals and how it will be develop in conjunction with the borough, it will have to keep the local strategies that apply for the plan of developments in Southwark Borough.

RMF Studio will have to ensure that the retail offer will be offered to a wider range socioeconomic group and it can be achieved by the association of small independent retailers in other to encourage the development of small local businesses. Also, with the development of offices and retail offices in the scheme the image of the development will be focus in a good quality design as it is part of a residential development scheme. A good strategy for the design of mixed development will be needed as part of this scheme, creating greener pathways between parts of development. It is also suggested to develop the offices and retail offices facing the streets in order to give a safe sensation to the visitors and the people that will be living there.

Briefly, Think Tank Planners Ltd has been working as a consultancy company and the recommendations given in this report are part of studies and analysis of the development market and RMF Studio is free to take our suggestions as a part of its development. We can guarantee that a development supported by a local authority will bring you more benefits in the future whilst the site will do the same. Both parties gain working together and the risk taken by your company will be shared. Both scenarios given as samples of the development are financially profitable.

References

Adair, A, Berry, J, & McGreal, S 2003, 'Financing Property's Contribution to Regeneration', Urban Studies (Routledge), 40, 5/6, p. 1065, Business Source Premier, EBSCOhost, viewed 4 January 2013.

Beaman, M., 2012. Development, Viability & Planning. A basic guide for planners and regenerators. Available at:

DCLG Publications, 2011. Community Infrastructure Levy [online]. Available from:

Guimond, D and Birks, J, 2007, Residual Land Value Analysis. (Memorandum) Economic & Planning System. accessed 08 January 2013. Available from:

Guy, S., Henneberry, J. & Rowley, S., 2002. Development Cultures and Urban Regeneration. Urban Studies, 39(7).

Isaac, D., O’leary, J. and Daley, M 2010 Property Development – Appraisal and Finance, Palgrave Macmillan.

Needham, B, Adair, A, van Geffen, P, & Sotthewes, M 2003, 'Measuring the effects of public policy on the finances of commercial development in redevelopment areas: gap funding, extra costs and hidden subsidies', Journal Of Property Research, 20, 4, pp. 319-342, Business Source Premier, EBSCOhost, viewed 4 January 2013.

Roberts, P and Sykes, H (2000) Urban Regeneration – A Handbook, British Urban Regeneration Association, SAGE Publications, London.

Tallon, A., 2010. Urban Regeneration in the UK, Routledge.

Wilkinson, S., Reed, R. & Cadman, D., 2008. Property Development. Routledge

Author: 3120150