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That sinking feeling

Plans to tear down 100 sink estates were announced with great fanfare by Prime Minister David Cameron and certainly grabbed headlines. But will they grab the problem?

Regeneration is a highly expensive, complex exercise, with typical schemes costing hundreds of millions of pounds to demolish and rebuild an existing blighted estate.

Yet the Government proposes to spend just £140 million between all 100 on its target list, which works out at just £1.4 million each if divided equally between them. Nobody needs to be much of an economist to work out how little that promises to achieve.

The idea is in principle a social good, but it so far lacks any detail, making it is difficult to assess the impact properly.

A fine intention is not enough to deal with financial realities. Regeneration involves not only the costs of demolition and land remedial work, but dealing with existing occupiers. All this before a single home is built.

The potential for a developer to get caught in political and legal minefields is also high. Not surprisingly, greenfield sites are far more appealing to developers. They are not without problems but don’t have, for example, the complexity of demolition and service diversity.

One thorny concern is where some tenants have exercised their right to buy. There would need to be individual negotiations and possession orders, and possibly compulsory purchase orders for those determined to stay, before the wrecking balls arrived.

The legal questions can all produce a grim quagmire of court proceedings, not to mention dire publicity, for a developer.

The high profile case of Elizabeth Pascoe, an elderly lady who took her battle to avoid eviction from a terraced house in Liverpool all the way to the High Court, embarrassed the agencies involved.

The question of who will pay for the full regeneration work has been left as open as the legal implications have been left unanswered, with only the familiar vague talk from Government of pension funds stepping in.

But that hope is to fundamentally misunderstand their relationship to the housing market, and the generally risk averse positions adopted by such funds.

The risk comes because regeneration in the current climate relies on developers being able to sell a proportion of new homes on the open market. Profit subsidises the enormous costs of a project and provides cash to meet the affordable housing quotient.

But housing markets and values fluctuate, which is why pension funds prefer to take a freehold interest in an existing social housing scheme with a secure revenue stream, and then lease it back to a housing association, thus minimising risk.

Another key question is whether the regeneration proposed is going to increase the number of dwellings, or at least maintain them, on a particular site.

Again, this is unclear. Most of the worst estates are high rises in urban areas, where density of occupation is central to avoid creating, or exasperating, local housing shortages.

The ripples do not stop with just the number of people accommodated. A further problem could be flooding a local housing market by adding more homes for sale in a particular price bracket. Developers will make their own assessments.

The problem for any housing association or developer looking at a sink estate is guaranteeing a financial return, particularly against other forms of development, and taking account of significantly more costs.

English Partnerships, the former national regeneration agency for England, provided what was known as ‘gap funding’ to help smooth out the bumpier financial patches, helping developers in return for a share of profits further down the line.

This has largely been mothballed as a mechanism, but could be revitalised to attract housing associations and developers who want to regenerate.

There is also the possibility of some sort of joint venture between the public and private sector to achieve Mr Cameron’s ambitions. However, it would need to tread warily around European Union rules limiting state aid and public procurement.

Government loans to developers are unlikely to breach the aid rules, and might offer a way forward.

Still, there must be some scepticism about the announcement in the absence of any serious detail. But whether it happens in whole or in part, the idea is entirely consistent with the Government’s approach to affordable housing, which is to shift the burden for its provision away from the state.

But the biggest obstacle to any regeneration will be money to make it happen. The sum allocated so far is just too little, even if announcing it has turned a welcome spotlight on a severe problem that has so far defeated all our governments.

First published by 24Housing on 1 February 2016

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at February 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions on www.TLTsolicitors.com

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