Can Labour lead an urban revival in the UK?

The UK’s new government has declared its determination to “get Britain building again”, announcing that the UK’s ‘green belt’ boundaries will be reviewed and a return to centralised housing targets, with 1.5m homes to be built in England over the next five years.

This week, Angela Rayner, deputy prime minister and housing minister, told Parliament that the government would be increasing previously suspended mandatory annual housing targets from 300,000 to 370,000 and would introduce changes to the National Planning Policy Framework (NPPF) that could make more areas in the green belt viable for construction, recategorising them as part of a ‘grey belt’. A New Towns Taskforce was also created to help the government create new, large-scale communities, each with more than 10,000 homes.

Meanwhile, a central focus of the new chancellor, Rachel Reeves, is to improve the UK’s poor economic performance versus other G7 economies. Reeves believes a principal reason for the underperformance is that the big UK cities outside London all underperform relative to their G7 peers.

This view is supported by Centre for Cities’s report, Climbing the Summit. Output per worker is 52% higher in London than the average of secondary UK cities. France has a similar problem with the predominance of Paris, but the gap is only 36%. While it is just 28% in the US, and 27% in Germany. In Canada, output is actually higher in the secondary cities.

The previous Conservative government sought to address this gap with its ‘levelling up’ agenda and a series of devolution measures creating new metropolitan mayors with business development powers.

But the problem is not just the performance gap. Paul Swinney, director of policy and research at the Centre for Cities, points to a more general picture of urban decline. “Most large cities outside of London have long underperformed, while London itself has stuttered since 2008,” he says. “This pulls down the national economy’s performance.”

In an interview shortly before the UK general election, Melanie Leech, CEO of the British Property Foundation (BPF), spoke of many UK town centres having “fallen into disrepair or frankly unpleasantness”. The BPF wants significant planning reforms and the creation of investment zones where “all interested parties can come together to make a better vision the reality”.

This multi-faceted approach to urban revival is a theme echoed by Catherine Webster, the CEO of Thriving Investments. “There’s a rebirth that needs to happen. Planning can help, but I think it needs a more joined-up approach, taking into account all of the issues,” she says.

Swinney adds that an urban rebirth in the UK “will need to be backed up with specific policy to help turn these places around, ranging from changes to the planning system to large sums of investment for R&D, transport, skills and regeneration”.

Thriving Investments commissioned Dataloft to examine the housing situation across England. It makes for grim reading. Some results were expected – London boroughs account for 10 of the UK’s 15 least-affordable locations for key-worker renting. But it also found renters in the commuter belt and key metro locations of Manchester, Birmingham, Bristol, Bath and South Wales were equally challenged. In the most unaffordable areas, over 80% of key worker renters were paying more than 30% of their income on rent. The big factor was population growth transforming regional shortages of affordable housing [see map].

“The key to the long-term prosperity and success of UK cities is the provision of high-quality housing that is flexible yet secure in tenure and attractive to talent on not just a national but a global level,” says Mervyn Howard, executive chairman at Apache Capital. “Right now, too much of the UK’s housing stock is of poor quality and expensive.”

The point is that targets must be met. “Housing targets have been used previously and, whilst they have increased delivery during certain periods, they have fallen far short of achieving their intended targets,” says Tim Roberts, CEO of developer Henry Boot.

“Setting targets does not alleviate the challenges of development. The government needs to ensure that green-belt reviews are carried out efficiently, planning officers are adequately trained and that the balance of affordable homes in new developments is correct, to ensure all cities are on a level playing field and targets have a realistic chance of being met.”

Centre for Cities estimates that since the introduction of the current planning system not long after the Second World War, Britain has underbuilt to the point that it now has a shortfall of 4.3m homes. “The return of housing targets is welcome,” says Swinney. “Making immediate changes to the existing system to improve its performance is a good thing to do. The broader issue, though, is the system itself. Until it is reformed, the UK will continue to build well below targets.”

Planning a shake-up

Rachel Reeves has promised to grasp the nettle of planning reform, describing the system as “antiquated” and “a graveyard of economic ambition”.

Leech calls for the restoration of “strategic planning”. Roberts longs for “a wholesale examination of the planning system, construction costs and town centre regeneration to finally remove the multiple barriers to delivery that the industry has been battling for far too long”.

Reform also has an added urgency, given current macro conditions. Pete Gladwell, group social impact and investment director at Legal & General, says: “In a higher-interest-rate environment, the cost of planning delays is more significant. This, in turn, makes it harder to bring in investment. Unlocking planning… should be central to the economic growth agenda.”

A broad approach is required, however. It must take infrastructure into account in all its different forms. As Shayan Ratnasingam, senior research analyst at Gravis says, it must consider “capacity in the electricity grid, constraints in the water and sewage systems, and the transportation network”. He says: “There will also be investment required in public services such as schools, libraries, and GP surgeries. This will require coordination among different levels of government and a national strategy.”

There could be some easy wins. A planning system that makes it easier for taller buildings to be constructed to accommodate private-sector demand would be a “good thing” in the view of Swinney. “Moving to a more predictable planning system that more easily allows change to occur has to be a good thing for the economy,” he says.

“It is unlikely, though, to turn around struggling city centres. The issue here is not that policy failure is preventing change, but that there is a lack of demand from the private sector to create change. Low footfall and a lack of office jobs in the centre are the cause of issues beyond the planning system.”

But there is a possible elephant in the room. The working-from-home trend combined with shifts in retail spending patterns has undermined the very raison d’etre of many town centres. “The demise of retail has taken many town centres out,” Webster says, “while city-centre offices have been undermined by working from home and the risk of energy obsolescence. There are a lot of stranded assets in city centres.”

The Dataloft study found that on average only 22% of key workers in the UK currently live within two miles of their workplace, versus 25% in 2018. The authors concluded: “Affordability constraints appear to be forcing key workers to live increasingly further from their workplaces.”

But could there be other factors at play? Barry Jessup, managing director at developer Socius, says: “The rise of hybrid working has created a more agile workforce, leading to strong demand for modern workspace outside of major city centres and investment opportunities across the country. Education – arguably the UK’s greatest export – has a key role to play as an anchor for towns and cities that can attract and retain talent and long-term investment.”

Knowledge economy and transport

Should the government be planning for a different urban pattern in the new ‘knowledge economy’?

It could be argued that the new government should be less focused on simply reviving historic industrial towns and more on newly developing communities that can contribute most to economic growth.

Gladwell talks of “knowledge ecosystems for universities and factories for clean-energy manufacturers”, while Webster says: “You need houses in the right area at the right price where economic development will take place. If you don’t have that then you won’t get economic growth.”

Matt Allen, board member of Bidwells and executive director of the Oxford-Cambridge Supercluster Board, outlines the scale of the opportunity but also the scope of the challenge. “If you look at the ‘OxCam’ region, you’ve got two of the top five universities in the world, with a higher share of citations in scientific publications than any other global scientific cluster, a higher per capita share of graduates than in San Francisco, a higher [venture capital] investment per capita than Boston.

“But we’re talking about two cities here which have populations of roughly 150,000, and we want them to compete on the global stage against Silicon Valley and Boston and other global science clusters.”

In Allen’s mind, it is crucial to “start presenting it as a cohesive region” one that sweeps in the urban centres in the Oxford-Cambridge arc. “There’s huge potential in some of these other towns. Milton Keynes, Bedford, places like that where you can see ancillary businesses being created. If you look at those universities spinning out companies,” he says.

This view is corroborated by the Dataloft report which highlighted the need for urban regeneration projects and targeted policies linked to housing-construction targets in new areas being absorbed into this supercluster, such as West and North Northamptonshire.

But Allen argues that transportation is key here to link this supercluster. “We need the East-West rail link to start presenting the region as a cohesive whole,” he says. “Something that could really drive not just the regional economy but the national as well.”

Better transport infrastructure is clearly another crucial element in urban revival. As Ratnasingam observes, it can “support the mobility of labour, encourage the growth of new industries, promote scientific research and innovation”. It might also give some hope to those communities trapped in yesterday’s urban landscapes. “A better transport network may lead to behavioural changes in the way we shop and interact with our local high streets,” he says.

Roberts concurs: “As a national business based in Sheffield, we recognise the positive impact that efficient transport systems can have on cities. Increased accessibility encourages economic development by attracting larger businesses and investment to the regions, creating jobs for nearby communities and boosting local commerce. Transport also has the capacity to reduce social inequality by connecting isolated neighbourhoods to more prosperous areas across cities.”

The new government has announced several bills to reform the railway and bus network. It will bring rail services under public ownership as existing contracts expire. It is further encouraging local authorities to franchise bus services.

“On paper this sounds like a great idea,” says Ratnasingam. “But this will need to be supported by a transport strategy that ensures fares are more affordable, services are reliable and regions are better connected.”

What role can private capital play? “There is plenty of private sector capital targeting urban infrastructure and some exciting opportunities ahead,” Jessup says. “Transport will have an enormous impact on cities, but it must be future-focused.”

To read the latest IPE Real Assets magazine click here.