Should Government reconsider how it assesses the value of public sector investment in our towns and cities?
A blog from IED Director Ben Pretty…
We have now firmly moved away from “regeneration” and “renewal” to “economic growth” and more recently “levelling up”. Different words, arguably the same meaning. Government investment to support the physical, social and economic attributes of urban areas in response to market failure has been a principle of urban policy for decades. The need for public sector intervention to support levelling up and town and city centre repurposing is critical. However, the Government’s latest appraisal framework, the “MHCLG Appraisal Guide”, is not suitable. It does not enable a sufficiently broad and consistent approach to monetise the full extent of social and economic benefits of investment. Government needs to immediately and fundamentally re-think its framework, or at least further develop the evidence base behind its wider metrics, to ensure our urban centres adapt to the rapidly changing needs and desires of society.
In the past, Government’s focus has been on the net additional productivity gains that could arise, largely measured through Gross Value Added (GVA). In 2016, the publication of the MHCLG Appraisal Guide and subsequent 2018 Green Book update changed this, with a new focus on Land Value Uplift (LVU) as a measure of productivity. This change was clearly linked to the Government’s focus on Garden Towns in the South East to deliver 300,000 new homes each year – a target it is still far from achieving. In our experience, this is great news for a 1,000 unit residential scheme on a greenfield site in Hertfordshire, where the LVU could easily exceed £1m per acre. However, applying this to town centre regeneration schemes in Rochdale or Bishop Auckland is difficult and presents a few challenges.
Is LVU the best way to measure productivity change for Levelling Up, and can we use it to achieve the Northern Powerhouse’s economic ambitions? In theory, some schemes could see Land Value Decline not Uplift as a result of change of uses. The redevelopment of a pay and display surface car park in a town centre to a serviced workspace scheme could see a decline in land values if the economic Existing Use Value exceeds the new scheme land value. Repurposing town centres and high streets is quite rightly hot on the Government’s agenda and significant funding is on the table through the Future High Street Fund and Towns Fund. However, with the focus on LVU, it is a challenge to make a strong value for money case to repurpose high street properties into libraries, health centres, cultural facilities and schools, for example, as many stakeholders advocate. Equally, where does this leave capital projects such as innovation centres, R&D facilities and FE College capital investment schemes? All of which typically require a public sector led approach or funding support to enable delivery.
Government needs to reconsider this approach if it is to “build, build, build” a path to economic recovery that isn’t South East residential led. We need to capture the wider economic and social benefits of investment beyond just LVU and wider transport benefits as part of a consistent and transparent framework. We need to ensure that these wider external benefits can be monetised in an appropriate and consistent manner. Otherwise, there is a risk that Government investment simply favours areas where the public sector can achieve the highest financial returns, rather than where the economic and social need is greatest.
In a post-Covid world where we are set to place a greater long-term value on health, wellbeing, productivity and sustainability, there is a need to ensure that LVU metrics don’t prevent holistic public sector investment decisions. Is it time to go full circle and reconsider the merits of GVA measures for schemes where LVU is not appropriate? Or more likely, is there a need for a more comprehensive approach to assessing the wider benefits of investment in urban centres to support the level of change that is needed? The Chancellor announced some months ago that the Treasury Green Book was being refreshed again. This framework doesn’t necessarily need rewriting as it is broad enough to permit a range of appraisal approaches. What needs reconsidering and developing is the MHCLG Appraisal Guide and the practical application of this to the latest Government funding programmes. Without this, there is a risk that levelling up will be no more than an unmet policy objective.
Ben Pretty is an IED Director and Partner in Cushman and Wakefield’s Development team specialising in economic development and appraisal.