Government support critical to garden communities’ success

Government and local authority support will be critical to the planning, funding, delivery and stewardship of future UK garden communities, according to those already involved in their creation.

Planned garden communities offer a unique opportunity to create highly sustainable, well-designed new settlements, according to the results of a survey by Pinsent Masons. However, their success will require long-term, well-funded partnerships between the public and private sectors, with innovative stewardship structures able to reinvest income generated from the development back into the community among the models being explored.

Understanding and adopting the best approaches from the current wave of projects – both those forming part of the UK government’s official garden communities programme, and others – will ensure that this is a generation of garden communities to be proud of.

The current state of the market

Pinsent Masons surveyed over 70 private sector promoters, local authorities, funders and infrastructure delivery partners and advisors in relation to a wide range of practical delivery challenges, opportunities and lessons learned from the delivery of UK garden communities. Of those surveyed, 51% were associated with schemes forming part of the UK government’s official garden communities programme, while others were associated with schemes being promoted as garden communities in marketing terms.

According to the survey results, UK garden communities usually include between 5,000 and 10,000 or 10,000 and 20,000 homes per development, with each representing 20% of respondents. This reinforces both the importance of garden communities to UK housing supply, and the scale most often required to help forward fund the infrastructure delivery costs associated with creating and delivering a new community over a long period of time.

However, there were also a significant number of schemes of 5,000 homes or fewer being promoted as garden communities. This may reflect both the genuine variety of schemes – towns, villages and even suburbs – which can comprise garden communities – and the rise in importance of being badged as a ‘garden community’ in marketing terms. Indeed, just over half – 51% - of those surveyed confirmed that being badged as such had assisted them in discussions with stakeholders and the local community.

Support through the planning system

The survey results indicate that 46% of garden communities benefit from a supportive local plan, but that 35% are still looking to secure that policy support or are being promoted without a local plan policy in place. Although there are clearly a good number of local plans supporting garden community delivery via allocations in England, it is clear from these results that more needs to be done for the local plan system to proactively promote garden communities.

A new local plan system, incorporating ‘growth areas’ and ‘protected areas’, is due to be rolled out as part of the forthcoming Planning Bill, and there is an ideal opportunity to use this to make it easier to accelerate the allocation rate of garden communities. The inevitable complexities of viability models and delivery evidence bases when promoting housing and mixed use schemes at scale, with multiple delivery partners often involved in delivery of associated infrastructure, should be reflected in more flexible and benign guidance for local plan inspectors. These should be able to accept evidence of a reasonable ‘routemap to viable delivery’ as satisfactory evidence for local plan allocations, rather than having to create a viability model illustrating every conceivable twist and turn over a five to 20 years plus period to secure an allocation.

The National Planning Policy Framework (NPPF) and National Planning Policy Guidance (NPPG) also need to be updated to reflect the longer-term view which needs to be taken to ensure more allocations of garden communities are forthcoming. Of our surveyed communities, 14% of schemes were at the pre-allocation stage in local plans. This indicates that reform is needed quickly to ensure delivery of the schemes already in the local plan process but also to encourage more ‘pipeline’ in future local plans, particularly once the new system is in place.

Financial support from public sector

Figures obtained from survey respondents illustrate the sheer scale of investment and the extent of the up-front infrastructure required to deliver garden communities successfully: 71% have either benefitted from or will require public sector funding, with only 13% saying no such funding was required.

Among the surveyed schemes, 42% of that funding came from Homes England, mainly via the Housing Infrastructure Fund (HIF); followed by 22% directly from local authorities – confirming the high level of local authority-led input into a number of garden community schemes. The remainder of the funding comes from Local Enterprise Partnerships (LEPs) and other delivery bodies including development corporations and growth companies.

In the majority of cases, the public sector funding component is over £50 million, illustrating how important public sector funding is for the successful delivery of garden communities just as it was for the delivery of the original waves of garden communities decades ago. The vast majority of this funding is grant-funded; with a slight majority of 36% overall on a recoverable or recyclable basis, and 30% overall being on a non-recoverable basis. Only 12% of surveyed schemes were public sector funded on a loan basis.

Of course, public sector funding is necessarily conditional on no unlawful state aid or breaches of ‘subsidy control’, and the HIF programme was specifically designed to ensure that this was the case. Its successor, Homes England, and other schemes must be similarly designed, unless the post-Brexit subsidy control regime takes a much more relaxed approach than possible under the previous regime. A combination of straight grant funding, with no clawback, for the most viability-challenged schemes, and a clawback and ‘recycling’ mechanism for the less viability-challenged schemes can therefore be expected to persist in successor public sector schemes.

One area for potential improvement identified by some survey respondents was the HIF approach to land valuation. There was a feeling that land valuations undertaken by Homes England in HIF appraisals were sometimes materially lower than market evidence suggested, with limited or no room for discussion allowed between expert valuers. Any fresh wave of garden community public sector funding support should therefore consider a more nuanced look at the approach to land valuation.

Respondents also signalled limited support for a predominantly public sector loan-based scheme – in contrast to the revolving loan facility approach taken in the early 2000s by the old Regional Development Agencies and which, it is anticipated, will be taken by the new government’s Towns Fund. Attracting institutional investors into garden communities remains an issue. An increase in ‘build to rent’ units and a potential new wave of ‘buy to rent’ product types are currently being examined as one way of increasing institutional investor appetite. The UK’s recent ‘levelling up’ white paper also highlights that the newly-established Infrastructure Bank is to help increase the capacity and capability of local authorities to deliver infrastructure in their areas. It is also being asked to co-invest, offer guarantees through the existing UK Guarantees Scheme, and provide a range of debt, equity and hybrid products. It has already committed itself to expanding institutional investment in UK infrastructure and could be utilised for garden community infrastructure.

Also worth keeping under review is the role of the British Business Bank which will be asked to develop its “next generation” Regional Investment Funds in close collaboration with economic development banks, devolved administrations and other local stakeholders.

Working in partnership

As expected, survey respondents demonstrated a real mix of garden community partnership delivery structures. Among respondent schemes, 30% involved collaboration agreements, 9% involved joint venture agreements and 11% involved development agreements. The approach of the rest was yet to be determined or unclear, indicating a need for more focus on delivery structures for the successful delivery of some garden communities.

Respondents indicated that collaboration agreements take a while to progress and do not then always cover all aspects of delivery. For example, they are often silent on long-term stewardship collaboration, including entry and exit routes, and sometimes only deal with equalisation in relation to some infrastructure items and not others. Joint ventures are not that common, but were felt to be more suited to public-private partnership arrangements, alongside development agreements, rather than private sector partnering arrangements. There was some feeling that joint venture arrangements with major landed estates or portfolio landowners was the exception, where long-term relationships could be built and fostered.

Local authority and community participation, alongside private sector developers and infrastructure providers, can, working together, help manage and maintain the public and private realm, provide and run a range of community facilities, and help manage utility services where appropriate. There was a desire amongst respondents to engender a sense of ownership and buy-in from local residents and businesses and to ensure a self-sufficient funding stream for high quality stewardship, including both capital and operational expenditure. Despite this, the survey revealed that only one quarter of schemes currently have a dedicated stewardship vehicle in place, with 63% needing to formulate proposals.

There was a strong desire among respondents for “next generation stewardship models” to be rolled out more widely, capturing the “best of the best of existing and new approaches”. There was a particular emphasis on strong income streams from new funding sources such as ESCO [energy service company] and MUSCO [multi-use service company] income, data strategy income, commercial unit rental income, e-car club rental income, community e-bike rental income and income from biodiversity net gain reservoir sites; alongside the more traditional service charge, rent charge and community facility income streams. The governance and long-term stability, combined with flexibility, of stewardship vehicles was also heavily discussed.

There was virtually unanimous agreement by respondents that this is an area which requires particular focus to successfully achieve the place-making agenda which is supposed to set garden communities apart from other schemes.

Only 3% of responses indicated that they had a ‘data strategy’ in place for the capturing and use of data from their garden community, with 97% of responses requesting more information about the options available. This is another emerging area requiring more focus from those involved in garden communities. In particular, there are clear opportunities to establish a data strategy, governed by a ‘data trust’, as an integral part of a stewardship vehicle approach for a garden community.

Co-written by Matthew Fox of Pinsent Masons.