Property

crown estate

What is the Crown Estate and why is the Government bringing forward legislation to reform it? 

The Crown Estate is an independent commercial business. It manages a portfolio of land and property that are hereditary possessions of the Sovereign held in right of the Crown. In acquiring, managing, investing and developing its assets the Crown Estate seeks to create prosperity for the nation. How does it do this, and what does this mean for rural communities? Jessica Sellick investigates. 

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The Crown Estate is tasked with focusing on the nation’s long-term, structural challenges. What is it, what does it do, why is the Government reforming it, and what does this all mean for rural communities?  

What is the Crown Estate? It is an independent, commercial business that manages a portfolio of land and property in England, Wales and Northern Ireland. Its assets are hereditary possessions of the Sovereign held ‘in right of the crown’. While they belong to the Sovereign for the duration of their reign, currently His Majesty King Charles III, they cannot be sold by him and nor do the revenues from the assets belong to him. The Crown Estate can be traced back to 1760 when King George III handed land and property over to the Government, with the revenue going to the Treasury in exchange for a fixed salary. Present day arrangements are set out in the Crown Estate Act 1961. This established the Crown Estate as a trust estate independent of its two beneficiaries – the Monarch and the Government. 

What does it do? Section 1 of the 1961 Act sets out the purpose of the Crown Estate: ‘managing and turning to account land and other property, rights and interests, and of holding such of the property, rights and interests under their management as for any reason cannot be vested in the Crown or can more conveniently be vested in the Commissioners’. The 1961 Act sets out a general duty for the Crown Estate to ‘maintain and enhance the value of its estate and the return obtained from it with due regard to the requirements of good management’, and to ‘pay its net revenue profit each year to the Consolidated Fund’. 

The Crown Estate pays its net revenue profit into a consolidated fund at HM Treasury each year [akin to the UK Government having a current account]. HM Treasury is the Crown Estate’s sponsor department and a Framework Document  (published in June 2023) sets out the relationship between the two bodies. The Crown Estate generated £1.1 billion net revenue profit for the public finances in the 2023-2024 financial year, and it has paid more than £4 billion into HM Treasury over the last 10-years. 

The Crown Estate’s net revenue profit is linked to the Sovereign Grant, money that is paid from the public finances to the King to support him in discharging his duties as Head of State. The size of the Sovereign Grant is usually equal to a prescribed proportion of the Crown Estate’s profit in the financial year two years prior to the year in question. Should the Crown Estate’s profits fall in the reference year, the Sovereign Grant is set at the same level as the previous year. The percentage used to allocate the Sovereign Grant is regularly reviewed – from an initial 15%, it increased to 25% from 2017-2018, and then from April 2024 reduced to 12%. The Crown Estate does not pay the Sovereign Grant directly, the payments it makes into the Consolidated Fund are then used by HM Treasury to pay the Sovereign Grant to the Monarch. 

The Crown Estate is managed by a board of Crown Estate Commissioners; and the Crown Estate’s strategy provides the framework that ensures Commissioners are discharging their responsibilities under the Act. The Crown Estate’s strategic objectives are to: 

  • Be a leader in supporting the UK towards a net zero carbon and energy-secure future. 
  • Create inclusive communities and through our activities support economic growth and productivity. 
  • Take a leading role in stewarding the UK’s natural environment and biodiversity. 

Today, the Crown Estate property portfolio has an estimated worth of £14 billion, and its net assets are valued at £15.5 billion. 

Where does it operate – and how much rural property and land does it manage? The Crown Estate describes itself as ‘a company for the country with land, property and seabed across England, Wales and Northern Ireland’. Its assets include: 

  • 10 million square foot of prime London real estate. 
  • 8 million square foot of commercial development space in the regions. 
  • 200,000 acres of land. 
  • More than 12,000 kilometres of coastline. 
  • 2 seabed areas with a combined landmass of England, Wales and Northern Ireland. 

‘Spanning urban and rural areas, our portfolio gives us a distinct opportunity to deliver positive outcomes across national priorities such as net zero and nature recovery’, Integrated Annual Report and Accounts 2023/23, page 11. 

The Crown Estate’s core activities are focused around: 

  • Optimising the use of land and capital across its portfolio. 
  • Leveraging scale and diversity. 
  • Aligning its operation with customers’ goals. 
  • Drawing on relationships and unique strengths. 
  • Investing in data and technology. 

The Crown Estate’s strategy is focused on maximising returns to HM Treasury through balancing short-term and long-term financial value; creating greener, healthier places and accelerating renewable technologies; playing a positive role in tackling inequalities and creating inclusive opportunities; and embedding indirect value through activities. 

The ‘Windsor & Rural’ portfolio is valued at £1.4 billion and generates £40.1 million in revenue. This part of the business covers The Windsor Estate with revenue generated from visitors, events, filming and forestry. In March 2024, The Royal Farms and Royal Farm Shop were transferred to the Crown Estate. This transfer is expected to increase income in 2024-2025. The Crown Estate also manages a rural portfolio of 185,000 acres across England and Wales comprising 130,000 acres of agricultural farmland and 55,000 acres of upland and commons interests in Cumbria and Wales. The portfolio also includes strategic land, forestry, renewable energy assets, minerals and quarries. It comprises 700 kilometres of publicly accessible footpaths, 3,000 (direct and indirect) jobs and a further 5,000 people directly or indirectly employed through the Windsor Estate and Great Park, as well as 435 homes and 206 community and tourism sites. The Crown Estate describes how: 

‘As one of the oldest and largest landowners in the UK, our aim is to be a model of large-scale sustainable, diversified and integrated agricultural and environmental best practice…Our rural strategy is designed to support the UK’s green agricultural transition, supporting both food production and nature. And our work on renewable energy, particularly offshore wind, is contributing to the country’s net zero ambitions’.     

The Crown Estate has contracts with managing agents to work with it on its land and property portfolios. Within agriculture, the Crown Estate aims to work closely with farmers to ensure the long-term sustainability of the land they manage. Some examples include:    

  • 200 kilometres of rural hedgerows and 400 acres of woodland were planted in 2023-2024 with support from the Crown Estate’s £10 million Environment Fund. The Fund is targeted at farmers for ‘no regrets’ nature recovery work. The Crown Estate has committed to establishing over 1,000 acres of new woodlands and 100 miles of new hedgerows by 2025.   
  • In 2023-2024 the Crown Estate began trialling a contract farming arrangement in the West Midlands. This is piloting lower-carbon techniques with learned shared across the portfolio.  
  • The Crown Estate is introducing new tenancy agreements to reflect regenerative farming principles to help pivot the rural portfolio to net zero by 2030. This includes the introduction of new Environmental Farm Business Tenancy agreements which are designed to support nature recovery and carbon reduction. These tenancies offer farmers 15-year terms if they adopt a more sustainable farming model. For example, the Crown Estate is working with 20+ farmers on the Devizes Estate to produce an Environmental Plan which will be integral to their new tenancy agreements.  
  • The Crown Estate is scoping projects to restore carbon-rich habitats such as saltmarshes and peatlands. This also involves looking for opportunities to enhance carbon sequestration and restore marine habitats. 
  • The Crown Estate is working with its supply chain to promote a ‘Safety First’ approach, with Managing Agents attending a one-day workshop delivered by the NFU and then talking to farmers about how health and safety can enhance what they do. 
  • Under-used agricultural buildings have been repurposed as offices, workshops and storage facilities. 

Strategically, the Crown Estate is focused on the interconnections between climate, nature and people. This includes broadening the datasets used in Rural and Marine activities to establish an enterprise-wide carbon baseline to give better insight into where the Crown Estate can have the bigger impact and influence. The Crown Estate wants 15% of its rural landholding to be dedicated to nature recovery.  

Why is the Government bringing forward new legislation governing the Crown Estate? The King’s Speech in July 2024 set out a commitment to bring forward legislation to modernise the Crown Estate’s investment powers and to give the company a new ability to borrow. The Crown Estate Bill is now making its way through parliament and would come into force two months after receiving royal assent. The Bill would amend the Crown Estate Act 1961 by extending the Commissioner’s powers to invest and borrow, increasing the maximum number of Commissioners, and changing the way their salaries are paid. According to the Government, the Bill will ‘modernise the Crown Estate by giving it the powers to borrow in order to invest at a faster pace’. The Crown Estate has welcomed this commitment to modernise its investment powers: 

‘These powers will allow us to have an even greater impact across our portfolio and ensure we play our part in supporting the UK’s transition to a decarbonised, energy secure future; nature recovery; regeneration and economic growth; as well as increasing the profit we return to government for the benefit of the nation’s finances’. 

A briefing from the environmental coalition Wildlife and Countryside Link in August 2024 recognises the essential role the Crown Estate plays in facilitating the Government’s plans to tackle climate change but argues the Bill is currently a missed opportunity to ensure the Crown Estate also facilitates the Government’s obligations towards the achievement of nature targets under the Environment Act 2021: 

‘We are calling for The Crown Estate Bill to be given a nature recovery objective, alongside the ability to invest in the technology, infrastructure and research required to further these aims’.  

The coalition also cites the Scottish Crown Estate Act which, since 2019, has placed a duty on the organisation to manage its assets in a way that ‘is likely to contribute to the promotion or the improvement in Scotland of (iv) environmental wellbeing’. In practice it means Crown Estate Scotland must make investment decisions that meet the highest environmental standards.  

As the owner of the seabed of England and Wales, the Crown Estate leases out plots of seabed to offshore wind and other developers such as those wishing to build carbon capture infrastructure. As part of its Marine business, the Crown Estate has 36 wind farms operating across its holdings, with a combined capacity of 11.8GW (enough to power 11 million homes). The Crown Estate also launched Offshore Wind Leasing Round 5, which is set to generate up to a further 4.5GW by putting innovative floating wind farms in the Celtic Sea. 

In July 2024 the Government announced a new partnership between the Crown Estate and Great British Energy. Under the arrangement, the Crown Estate will establish a new division called ‘Great British Energy: The Crown Estate’ which will: 

  • Bring forward new offshore wind developments, with the potential to deliver up to 20-30GW of extra offshore wind seabed leases to the market by 2030. 
  • Stimulate new energy technologies such as floating wind, hydrogen, carbon capture and tidal energy. 
  • Invest in ports and clean energy supply chains. 
  • Ensure that future developments have lower risks for developers and enable faster building from leasing. 

The Government estimates that the partnership could reduce the time needed to get an offshore wind project delivering power to homes by up to 50%. 

There have been calls for the profits from offshore wind projects to be used to improve employment opportunities and supply chains within the energy sector; while others are calling for the profits generated to be devolved. Fishermen in Devon and Cornwall, for example, have expressed concerns that swift policy changes may reduce investment in fisheries management, fleet upgrades and coastal infrastructure and lead the seafood supply chain to potentially collapse. The Cornish Fish Producers Organisation (CFPO) believes that the rush for net zero should not be at the expense of a centuries old industry that plays an equally critical role in the nation’s sustainability. The Crown Estate has confirmed it has already engaged directly with fisheries during its initial consultation period and is seeking views from across the industry and marine stakeholders. 

In September 2024 Great British Energy: The Crown Estate published its Considerations for the future of offshore wind and has called on industry and wider stakeholders to help shape its approach to seabed leasing.  

What role can the Crown Estate play in rural communities? The Crown Estate takes a long-term view to delivering positive change and recognises that change needs to be carefully managed. However, there can be a lack of public awareness of the organisation’s existence and its work. Within and across its Rural portfolio and rural strategy, for example, what role does (and can) the Crown Estate play in a living, working countryside – beyond viewing its activities within a sector (e.g., agriculture, minerals and mining) or site? While its direct drivers are around maximising financial returns, what direct and indirect benefits and impacts does it have on rural communities (e.g. infrastructure, affordable housing, quality job opportunities, training?) And with new legislation on the way, how can its future activities take account of the needs and interests of rural communities? Watch this space.  

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Jessica is a project manager at Rose Regeneration and a senior research fellow at The National Centre for Rural Health and Care (NCRHC). She is currently measuring the impact of a service that supports patients living with and beyond cancer; and reviewing neighbourhood-based initiatives (NBI). Jessica also sits on the board of a charity supporting  rural communities across Cambridgeshire and is a member of her local Patient Participation Group. 

She can be contacted by email jessica.sellick@roseregeneration.co.uk. 

Websites: http://roseregeneration.co.uk/ https://www.ncrhc.org/ 

Blog: http://ruralwords.co.uk/ 

Twitter: @RoseRegen 

Do we need a new framework for managing land?

Do we need a new framework for managing land?

While land is one of our greatest assets, it is a finite resource. A number of commentators have suggested a land use framework would help tackle increasing pressures on land. It is also seen as a way of giving local communities and landowners greater security in making long-term decisions about land. But there are also concerns that a land use framework would have unintended consequences, such as placing limitations on land use. With Defra due to publish a Land Use Framework in 2023; how can we make better use of land, and what does a good land use framework look like? Jessica Sellick investigates. ………………………………………………………………………………………………..

Back in 2010 the Government Office for Science published a report on ‘Land Use Futures: Making the most of land in the 21st century’. This followed a 2-year Foresight project on the future of land use in the UK. This independent study looked at how land is used and managed, the benefits it delivers, and the impact of change. If a land system is to deliver best value for the country in a sustainable way, the project team suggested that we need to estimate the value of land in alternative possible users (including for future generations). With conflicting needs of individual households, communities, regions and the country as a whole, they argued it is important to ensure that economic and regulatory mechanisms are in place to deliver best value. The authors identified an important issue around whether a central body would be necessary to oversee all aspects of land use policy and implementation, or whether a decentralised approach would be sufficient.  

[This project] demonstrates that there is a strong case to develop a much more strategic approach: to guide incremental land use change, incentivise sustainable behaviours, and to unlock value from land…a reappraisal is vital to help address major challenges ahead – for example, relating to demographic shifts, climate change, and rising demand for commercial and residential development…The challenge…is to deliver a wider range of sustainable benefits from land. In particular, a more coherent and consistent approach is needed for managing growing demands on land – at different levels of Government, and across the wider community of stakeholders involved in the many land use sectors (page 9)…The essential requirement is that sufficient oversight should be established so that greater coherence and consistency is achieved’ (page 35).  

More recently, in 2019, a report published by the House of Lords Rural Economy Committee called on the Government to develop a ‘spatial plan’ for land use in England, describing how this would “help ensure that the right type of development is brought forward in the right places, enabling sustainable and growing rural economies and communities. Government must carefully consider how such a plan may be developed at a local and regional level, focusing on how groups of local authorities may be encouraged or required to work together to develop and implement the plans” (page 171).   

In 2021, the National Food Strategy proposed a rural land use framework. This called on Defra to work with Local Nature Recovery Networks to prepare a National Rural Land Map. Such a map would show the productivity of agricultural land, priority areas for the environment, and areas where there are significant levels of pollution. It would also display information from the England Tree Strategy, England Peat Action Plan and Local Nature Recovery Strategies. 

In June 2022 Defra published the Government’s food strategy. This contained a commitment to ‘publish a land use framework in 2023 to ensure we meet our net zero and biodiversity targets, and help our farmers adapt to a changing climate, whilst continuing to produce high quality, affordable produce that supports a healthier diet’. 

In December 2022, the House of Lords Land Use Committee published its report ‘Making the most out of England’s land’. The Committee highlighted a number of issues standing in the way of making the best decisions on land use: from siloed working and conflicting priorities, through to policy uncertainty and lack of coordination between different tiers of Government. The Committee recommended that a Land Use Commission be created and be tasked with producing a land use framework – which should consider several factors including food, nature, housing needs and net zero. The Committee’s Chair described how “Throughout this inquiry we repeatedly heard evidence that showcased the need for guidance and clarity in the form of an overarching framework to assist farmers, landowners and land managers to make the most effective use of their land”. The Government responded to the Committee’s report in April 2023. It said it “disagree[d] with the proposal for a separate Land Use Commission. However, we agree that the framework must take a wide range of land uses into account and that it may be necessary to assemble a group of experts to oversee the application of the Land Use Framework once published. We agree that a land use framework should reflect existing planning frameworks and guidance, and that regional and local priorities must be taken into account when making any recommendations on national priorities. We are clear though that we do not intend to prescribe either land sharing or sparing, nor to determine at a national level where individual activities or uses should or should not be occurring. Our focus is on supporting the delivery of resilient, multifunctional landscapes which will be dependent on the local context and needs”.  

In May 2023 the Geospatial Commission published a report recommending the establishment of a new Land Use Analysis Taskforce. This would bring together ‘cutting edge data’ and ‘scientific expertise’ to support land use decision-making. 

In June 2023, Baroness Bennett of Manor Castle submitted a written question to Defra asking ‘whether the forthcoming national land use framework will balance the competing demands for agriculture, development, energy, and infrastructure in a way that actively promotes the installation of solar panels on suitable brownfield land and rooftops’? In his response, Lord Benyon described how “Striking the right balance between different land uses is a challenging task, which will involve trade-offs. There are many uses of our land that we need to anticipate for the future: growing food, planting trees, building homes, natural habitats, energy, land for infrastructure, and leisure and recreation. The Land Use Framework for England, to be published this year, will help to inform how we manage trade-offs and maximise co-benefits on the land, thereby supporting the delivery of multifunctional landscapes that will be dependent on the local context and national needs”.   

What is a Land Use Framework, do we need one in England, and what does a good framework look like? 

What is a Land Use Framework? According to the Food, Farming & Countryside Commission (FFCC) it is ‘an approach to managing land use decisions that mediates competing pressures and encourages multifunctionality, enabling land to provide multiple benefits for public value. It consists of  a set of agreed principles and practices for local and national organisations, businesses and communities, guiding transparent, inclusive, evidence-led decision-making’. 

In academic circles, it is framed around understanding the inputs, system-level impacts, and trade-offs between different land uses. Approaches to do this have focused on understanding land intensity, Land Use Functions (LUF), and/or Land Use Transition (LUT). Similarly, there have been calls to address the issues associated with changing land uses in interdisciplinary and transdisciplinary ways.

In policy circles, a land use framework sets out principals and responsibilities that take account of relevant legislation and/or professional standards. This often involves a mix of stakeholders (individuals and organisations), has a spatial and/or organisational context, and sets out what is (or should be) happening or expected to happen. 

England already has a number of land use governance and frameworks in place. Some examples include: 

  • National Planning Policy Framework (NPPF): this sets out the Government’s planning policies for England and provides a framework within which locally prepared plans for housing and other development can be produced, as well as setting guidelines for conserving and enhancing landscapes such as National Parks.
  • National Policy Statements: these set out the Government’s objectives for the development of nationally significant infrastructure projects.
  • Local Plans: Developed by local planning authorities, these set out the vision, growth strategy and strategic policies for a local area.
  • Local Nature Recovery Strategies (LNRS): an emerging system of spatial strategies that will establish priorities and map proposals for specific actions to drive nature’s recovery and provide wider environmental benefits.
  • Environmental Land Management scheme (ELMs): agricultural policy reforms designed for England’s countryside and environment. 

In February 2023 the Royal Society published a report analysing the Government’s policies and targets relating to land use. It found, if existing land-based policy commitments were added together, the UK’s land risks being ‘overpromised’. By 2030, up to 1.4 Mha of additional land [equivalent to the size of Northern Ireland] could be needed to meet current policy targets for net zero and biodiversity, if current agricultural production, diets, and food waste remain static. This rises to 4.4 Mha by 2050: over twice the land area of Wales and 18% of total UK land area. The report contains figures to highlight the increasing pressure on the UK’s land over time and emphasises the importance of a multifunctional framework to maximise synergies and minimise  trade-offs; and of ‘joining up policy development across all departments of government within a land use framework informed by a comprehensive and continually improving evidence base’.  

Does England need a Land Use Framework? Land is fundamental for how we live our lives and recognising land use pressures is increasingly seen as a cross-cutting national challenge. Other UK nations have a range of land use policies and mechanisms in place. The Scottish Government, for example, published its land use strategy in March 2021 – setting out a long-term vision for sustainable land use, its objectives and key policies for delivery. In Scotland, a land use strategy must be produced every five years, with the first such strategy published in 2011. The strategy references Scotland’s National Planning Framework (NPF), which it sees as a platform to take forward conversations about sustainable land use.

In February 2021, the Welsh Government published its National Plan for Wales. The Welsh Government described the document as a ‘development plan’ with a strategy for addressing key national priorities through the planning system, including sustaining and developing a vibrant economy, achieving decarbonisation and climate-resilience, developing strong ecosystems and improving the health and well-being of our communities’. It sets out the Welsh Government’s land use priorities and provides a national land use framework for strategic development plans (SDPs) and local development plans (LDPs). 

In Northern Ireland, the Department for Infrastructure is responsible for the review, monitoring and implementation of the Regional Development Strategy (RDS). The RDS is viewed as a long-term plan for delivering the spatial aspects of the Northern Ireland Assembly’s Programme for Government. This includes addressing the economic, social and environmental issues aimed at achieving sustainable development and social cohesion. It therefore offers a framework which provides the strategic context for where development should happen. 

Increasingly, the UK Government is taking a systems-thinking approach to developing land use policy – with examples including tools that identify and track risks across the net zero portfolio.  The forthcoming Land Use Framework for England is intended ‘to ensure food security is balanced alongside climate and environment outcomes’. 

In its response to the Government’s Environmental Improvement Plan (EIP), the NFU confirmed it shares the Government’s environmental ambitions alongside equally ambitious plans for food production to protect and enhance the UK’s food security. The NFU is calling on the Land Use Framework to recognise the need for the countryside to remain a functional, dynamic space – indicating how greater access to data on land capability will be needed to inform business decisions and maximise land use efficiency.   

Some commentators argue that a Land Use Framework is not needed, or that it may lead to unintended consequences in England. In December 2022, for example, the Country Land and Business Association (CLA) highlighted how ‘if it [the Framework] were to go as far as identifying land parcels it could result in zoning and limitations on land use that could stifle both farming and environmental innovation. It could also be used to prevent rural development and business diversification. Instead, the development of Local Nature Recovery Strategies (LNRSs) will bring data together in a consistent and transparent way’. Combined with meaningful engagement with land holders and local communities, the CLA views LNRSs as a more effective route to bring data together, achieve local buy-in and motivation to deliver than a land use framework.   

What does a good Framework look like? Green Alliance has suggested that given over 70% of the UK’s land surface is farmed, while an ideal framework would cover all conceivable land uses, it should focus on the largest changes first in noting that 2.5% of rural land needs to be converted to native habitat or agroecologically managed farmland to achieve UK nature and climate goals at the least cost. According to Green Alliance the framework and related policy should do five things: 

  1. Map food production in England, showing where farmland is more or less productive. 
  2. Map the potential for land in England to store carbon and support nature through habitat creation and agroecology. Comparing this with the food production map (1) to explore changes and trade-offs. 
  3. Set out the  scale of land use change needed between now and 2050, and the land best suited to delivering environmental goals. 
  4. Explore different pathways for delivering this and the costs of doing so. 
  5. Outline how the target agreed at the COP15 UN biodiversity conference to protect 30% of land for nature by 2030 will be met. 

According to the Foresight project on making the most of land, the essential components of a framework should include: 

  • Establishing and cascading UK-wide land use objectives and priorities – aspirational or mandatory. 
  • Ensuring clarity on decision making at national, regional and local levels. 
  • Ensuring decision making is integrated and evidence-based. 
  • Facilitating the collection and dissemination of better date and information. 
  • Ensuring appropriate incentives to guide decisions on land use. 
  • Promoting decisions and policies that are robust in the face of changing circumstances and future uncertainty. 
  • Promoting opportunities for multifunctional land uses and collaboration amongst potential beneficiaries. 
  • Periodic review of outcomes against national and local objectives. 
  • Evaluating the robustness of new policies and interventions against  future uncertainties. 

The Royal Society has been exploring how science can be used to better manage land. In February 2023, the Society published its long-term vision for managing the UK’s land. This includes work around multifunctional landscape analysis – metrics that can be used to assess all the different products and services provided by the land, and that take into account the context within which a service is being measured. This is part of attempts to analyse the trade-offs and synergies between different land uses. The report also includes a recommendation that UK countries should develop and coordinate spatially explicit national land use frameworks to ensure coherence between national and local scales.  

Views vary about the scale or boundary of a land use framework, how it could be used to inform decision making, and how such an approach would be governed, delivered, funded and monitored.  

What does it mean for rural areas? FFCC has worked with Devon and Cambridgeshire to see how different components of a land use framework could be implemented at a county level. In Devon, the approach has been ‘data up’, with in-depth analysis of sub areas and catchments. In Cambridgeshire, the approach has been ‘whole county’, with a layered map approach trialled. In March 2023, FFCC published some initial lessons from the pilots, covering five key areas. 

  1. Scope and scale: a land use framework can be a helpful way of empowering and enabling local leadership to address issues across silos and deliver positive change. 
  2. Leadership: counties and/or Combined Authorities seem to be the right level to integrate national and local considerations. 
  3. Data: a lot of data exists already and the emphasis should be on using this to inform decision making – the process of bringing together data is valuable in considering strategic land use issues. 
  4. Communities: the mechanisms that currently exist for communities to influence land use change largely involve blocking or slowing development. There is an opportunity to bring citizens together to generate a positive vision for their area that goes beyond just the built environment. 
  5. Landowners: their ability to take a long-term view of the issues beyond political cycles is useful.   

FFCC aims to take the learning from the pilots to inform the development of a Land Use Framework for England. In the meantime, Devon County Council has committed to developing a land use framework to inform their food and carbon strategies. In Cambridgeshire, a prototype data decision-support tool is being developed. Pilots have also been taking place in Newcastle and Northern Ireland. Findings from all of the pilots will be shared from autumn 2023. 

Where next? In the words of Mark Twain, ‘buy land, they’re not making it anymore’.Our relationship to land is pivotal, connecting us to nature, culture; it shapes who we are and who we might become. Yet land is a finite resource and much is at stake for rural communities: how are we going to grapple with deciding what land provides now, and in the future; and will Defra’s Land Use Framework for England help us? Watch this space.   …………………………………………………………………………………………………

Jessica is a project manager at Rose Regeneration and a senior research fellow at The National Centre for Rural Health and Care (NCRHC). She is currently evaluating hospital discharge and hospital avoidance schemes, and a service that supports older people to maintain their independence. Jessica also sits on the board of a charity supporting  rural communities across Cambridgeshire. 

She can be contacted by email jessica.sellick@roseregeneration.co.uk. 

Website: http://roseregeneration.co.uk/https://www.ncrhc.org/ 

Blog: http://ruralwords.co.uk/ 

Twitter: @RoseRegen 

Finding a place to call ‘home’: what more can be done to plug the rural housing gap?

Finding a place to call ‘home’: what more can be done to plug the rural housing gap?

Despite numerous consultations, announcements, funding packages, targets and interventions by successive Governments the housing gap remains – with the number of households [demand] outstripping the houses built [supply]. While rural places are often viewed as idyllic places to live, work and enjoy they face particular issues around affordability, accessibility and contain more second / holiday homes than their urban counterparts. How many homes do we need, and what more can be done to provide the rural homes people require? Jessica Sellick investigates.

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How many homes do we need, and are we delivering enough?  

Back in 2015 the Coalition Government set out an ambition to deliver 1 million net additions to the housing stock by the end of 2020. In 2016 a House of Lords Select Committee on Economic Affairs report recommended the development of at least 300,000 homes annually for the foreseeable future. 

In 2017 the Conservatives made a pledge to meet the 2015 commitment, and to deliver 500,000 more homes by the end of 2022. In January 2018, the Department for Housing Communities and Local Government (DCLG) was renamed the Ministry of Housing, Communities and Local Government (MHCLG); and the Homes and Communities Agency (HCA) relaunched as Homes England and tasked with implementing the Government’s white paper to supply new homes.  The white paper found ‘not enough Local Authorities planning for the homes they need; housebuilding is simply too slow; and the construction industry is too reliant on a small number of big players’. The white paper highlighted the need to: 

  • Build the right homes in the right places. 
  • Build them faster. 
  • Widen the range of builders and construction methods. 
  • Help people now – by investing in new affordable housing and preventing homelessness. 

Since the white paper numerous consultations and policy developments have taken place. The Planning White Paper published in August 2020, for example, described the planning system as central to the failure to build enough homes and made a number of proposals to reform the system. 

The current Government target is to provide 300,000 homes a year by the mid-2020s. Data shows that new supply has been increasing, reaching 244,000 completions in 2019-2020. Housebuilding starts fell in April-June 2020 as a result of COVID-19 [reaching levels similar to 2008]; though starts began to increase in July-September 2020. 

Estimates published by the Centre for Policy Studies (CPS) for 2019 show that housing completions since 2010 have averaged approximately 130,000 per year – below the current Government target. 

According to the Department for Environment, Food and Rural Affairs (Defra) Statistical Digest of Rural England (May 2021), between 2019-2019 and 2019-2020, the number of housing completions per 1,000 households increased in both predominantly rural and predominantly urban areas: with 10.5 dwelling completions in rural and 6.0 completions in urban areas. The Statistical Digest reveals how: 

  • There has been a steady increase in dwelling completions by Local Authorities and Housing Associations in predominantly rural areas: in 2019-2020 there were 2.1 completions per 100,000 households in rural areas compared to 1.1 completions in urban areas.  
  • In 2018-2019 in predominantly rural areas there were 64,700 net new dwellings, (or 12.8 per 1,000 households). This compares to 147,990 net new dwellings (9.4 per 1,000 households) in predominantly urban areas. 
  • New-build dwelling completions accounted for 90% of net additions to the housing stock in predominantly rural areas in 2018-2019, compared with 84% in predominantly urban areas. 
  • A further 8% of such net additions came from change of use of buildings in predominantly rural areas, compared with 14% of such net additions in predominantly urban areas. 
  • New-build dwelling completions per households in predominantly rural areas are higher than in predominantly urban areas: in 2018-2019 there were 11.6 new-build dwelling completions per 1,000 households in predominantly rural areas, compared with 7.9 in predominantly urban areas. 
  • In 2018-2019, the net number of dwellings arising from change of use in predominantly rural areas was 1.0 per 1,000 households and in predominantly urban areas it was 1.3 per 1,000 households.

According to a report by the National Housing Federation (NHF), nearly 8 million people have some form of housing need in England. 

Research from Heriot-Watt University in 2019, estimated a housing backlog of 4 million homes; and the total level of new social housing at around 340,000 for England per year until 2031. They proposed this comprise 90,000 homes for social rent, 30,000 for intermediate affordable rent, and 25,000 for shared ownership. 

Defra’s Statistical Digest suggests there are proportionality fewer homeless people and people living in temporary accommodation in rural areas compared to urban areas. However, research published by CPRE, the Rural Services Network and English Rural in October 2020 found homelessness in rural areas has doubled over a 2-year period: with the number of households categorised as homeless in rural Local Authorities rising to 19,975 – an increase of 115% from 2017-2018. 

Crisis distinguishes between ‘core homelessness’ and ‘wider homelessness’. Core homelessness refers to households who are considered homeless at any point in time because they are living in short-term or unsuitable accommodation. This includes rough sleeping, sleeping in tents/cars/public transport, unlicensed/insecure squatting, unsuitable non-residential accommodation such as ‘beds in sheds’, hostels, night/winter shelters, domestic violence victims in refuges, temporary accommodation such as bed and breakfast accommodation and sofa surfing. Wider homelessness refers to people at risk of homelessness or those who have already experienced it and are living in temporary accommodation. This category encompasses staying with friends/relatives, being under notice to quit, being asked to leave by parents/relatives, in other temporary accommodation (e.g. social housing, private sector leasing), and/or being discharged from prison, hospital or other state institution without permanent housing. The research team at Heriot-Watt University used the main components of core homelessness and undertook statistical modelling to predict rates. The central estimates suggest in 2018-2019 the number of core homeless households in England was approximately 201,000. 

Between April and December 2020, some 39,110 households secured accommodation through a relief duty which required Local Authorities to bring everyone living on the streets into self-contained accommodation as a response to COVID-19 [‘everyone in’] – 3,300 people were sleeping rough on approach.  

Properties must be unfurnished and unoccupied for more than 6-weeks to be classed as empty. An audit of homes that have been empty for 5-years or more by Action on Empty Homes (AEH) found 400,000 empty properties. Almost 50% of the homes liable for the empty homes premium are in council tax band A. In 2020, 300 Local Authorities in England charged owners of long-term empty properties a council tax premium. Hotspots for where those in the higher bands were charged include Cheshire East, Buckinghamshire and Surrey. AEH also suggests there are thousands of empty homes that are furnished empties, often referred to as second homes, which comprise a further 263,000 homes and do not fit the empty definition and are not therefore charged a premium. 

While the trend is for an increasing number of new homes to be supplied annually [with the Government working towards a target of 300,000 per annum], historically we have consistently been unable to meet any supply target(s) set. Such targets do not take account of the estimated 400,000 empty properties or 263,000 second homes. They also fail to take account of people with a housing need [4-8 million households], the 39,000 people housed as part of ‘everyone in’ or 201,000 households experiencing core homelessness. While some of the figures suggest the rate of new build completions is higher in predominantly rural areas when compared to predominantly urban areas, the rate of change of use is lower in rural areas. When looking at the datasets it can be difficult to understand how people in rural areas are being affected by the availability of housing in their local area – how many homes do we need in rural areas, and who for?    

Are we delivering homes in the right places, to a high standard, and at an affordable cost?  

Whatever the supply target, it is clear that providing a home for everyone who needs one is not simply about just building more houses anywhere. While there are severe housing shortages across the country, rural areas face particular difficulties. According to the Rural Services Network (RSN): 

  • Average house prices are £44,000 higher in rural areas than urban areas. Housing is less affordable in predominantly rural areas, where lower quartile (the cheapest 25%) house prices are 8.3 times greater than lower quartile annual earnings.
  • Options for those on low incomes seeking social rented housing are typically limited in small rural settlements. Only 8% of households in villages live in social housing. By contrast, 19% of households in urban settlements live in social housing. 
  • The rural stock of social rented housing has shrunk under the Right to Buy policy, with sales quadrupling between 2012 and 2015 to reach 1% of the stock each year. Although the sale income is intended for reinvestment, only 1 replacement home was built in rural areas for every 8 sold during this period, and these replacements were rarely in the same settlement.
  • Second homes and holiday lets often add to rural housing market pressures, especially in popular tourist areas. They form a particularly large share of the housing stock in some local authority areas – including, for example, Isles of Scilly (15%), North Norfolk (10%) and South Hams (9%).

Many of these difficulties were echoed in evidence given to the Parliamentary Inquiry into Rural Health and Care in 2020. Ms Jo Lavis (housing professional) described how, in 2019, just 5,558 new affordable homes were built in villages of less than 3,000 population, with 80% of those completions private sector dwellings. In 70% of rural communities it is not possible to gain affordable housing on-site from developments of less than 10 dwellings. Housing needs surveys undertaken by Rural Housing Enablers (RHEs) in 10 counties and 26 villages between January and March 2020 found: 

  • 383 households were looking for affordable housing. 
  • 71% of households were looking for a home to rent. 
  • 60% of households earned less than £30,000 per annum and half of them less than £20,000.  
  • 35% were aged 16 – 30 years and 21% 60 years and over.  
  • 42% were looking for a house and 56% looking for a bungalow/level access or adapted housing. 

Stays of longer than 28 nights on Airbnb globally rose from 14% in 2019 to 24% in the first three months of 2021 with remote working one of the contributing factors. Rural nights booked in the UK have increased from 25% to 50% of bookings. A survey by ARLA Propertymark and Capital Economics found 470,000 properties could be removed from the long-term lettings market to short-lets; and 16% of all adults have let out all or part of their property (equating to 19% of the UK’s housing stock). There are concerns that the supply in the private rented sector will drop and rent costs will increase.

What are we building?

According to Defra’s Statistical Digest, in 2011 the majority of houses in rural villages & rural hamlets and isolated dwellings were detached properties. In 2018, the majority of new-build residential transactions were detached properties in both rural village & dispersed and rural town & fringe settlements, at 58% and 52% respectively. In 2018, there were 14,000 transactions for detached properties, a level four-times greater than in 2009.  Flats made up the smallest proportion of new build transactions in rural areas, but the majority in urban conurbations (at 56%). 

Regarding existing stock, in her evidence to the Inquiry, Ursula Benion (Trent and Dove Housing/Rural Housing Alliance) highlighted how rural homes are less likely to be updated; and rural areas tend to suffer from poorer broadband, which affects the use of technology to make rural dwellings more “liveable” and the desirability of rural places as communities to live in.

A decent home? 

A report from the Centre for Ageing Better and Care & Repair England found more than 4.3 million homes in England did not meet basic standards of decency, most commonly because of the presence of a serious hazard to their occupants’ health or safety. Half of these homes are lived in by someone over 55 years of age, and a million homes contain at least one child. Households headed by someone over 75 years of age were found to be disproportionately likely to be living in a non-decent home, and the problem has worsened for this age group. Two million households headed by someone over 65 years of age find it difficult to heat their home. The largest number of non-decent homes is among owner-occupiers, with many facing financial or practical barriers to maintaining their home. Meanwhile 20% of all homes in the private rented sector were deemed ‘non-decent’.  

Research from Shelter has looked at the impact of poor quality housing on mental health. 1 in 5 English adults surveyed (21%) said a housing issue had negatively impacted upon their mental health in the last five-years. 3 in 10 of those with a housing problem said they had experienced no issue with their mental health previously. 

The Government is currently carrying out a review of the Decent Homes Standard. Part 1 will run to Autumn 2021 and seek to understand the case for change to criteria within the Standard. If the case for change is made, part 2 will run from Autumn 2021 to Summer 2022 and will consider how decency should be defined. 

What’s affordable?  

The Affordable Housing Commission has estimated that 1.6 million working age households in the bottom half of income distribution spend 33% of their net income on rent; with 1.2 million of these households paying more than 40%. Problems of affordability are heavily concentrated in the private rented sector where tenants have the least security. According to the English Housing Survey, in 2019-2020 privately-renting households spent more of their income on housing on average compared with other groups. On average, private renters spent around 32% of their income on rent, compared with 27% for social tenants and 18% on mortgage costs for mortgagors. Overall, the Commission reported that 1 in 5 households in England face some form of affordability issue. This was supported by the Church of England’s coming home report which described how: “in rural and coastal tourist destinations, even just a few homes being taken up as holiday or second homes can have a significant impact on local communities. Schools, churches and community organisations find it difficult to recruit pupils and members. Local businesses struggle out of season” (page 25). 

In ‘making housing affordable again’, the Affordable Housing Commission analysed the proportion of income that lower-income households have to spend on housing. The tables below (page 68) indicate how problems of affordability are concentrated in the private rented sector where tenants have the least security; and in London and the South East where two-thirds of private sector tenants were found to be paying one-third or more of their income in rent:

There is no all-encompassing statutory definition of affordable housing in England and there is ambiguity in the way the term ‘affordable’ is applied in relation to housing. Often used to describe housing provided with public subsidy, it can also be applied to describe housing of any tenure that is judged to be affordable to a particular household or group by looking at housing costs, income levels and other factors. 

In 2002 the Chartered Institute of Housing (CIH) submitted evidence to the Transport, Local Government and the Regions Select Committee’s Affordable Housing inquiry in which it argued for precise and appropriate definitions of affordable housing. Then, the Office of the Deputy Prime Minister (ODPM): Housing, Planning, Local Government and the Regions Select Committee conducted an inquiry into Affordability and the Supply of Housing in 2005-2006, choosing to define affordable housing as: ‘subsidised housing that meets the needs of those who cannot afford secure decent housing on the open market either to rent or buy’. Since then, within Government housing policy, affordability has been linked to below market prices and rents. Currently, ‘affordability’ as a technical term is defined in Annex 2 of the National Planning Policy Framework (NPPF) as “(i) social rented, (ii) affordable rented and (iii) intermediate housing, provided to eligible households whose needs are not met by the market.” 

While noting how the NPPF had incorporated these definitions in its 2019 update, the Affordable Housing Commission concluded in 2020 that “many of these products are clearly unaffordable to those on mid to low incomes”. 

The housing cost to income ratio (HCIR) considers the proportion of a household’s disposable income spent on housing. This measure is widely used in studies of affordability. For example, the HCIR has been used by the Resolution Foundation in its research on affordability – identifying an overall trend is one of significant increases in housing costs relative to income. While the average family spent just 6% of their income on housing costs in 1961, today this has trebled to 18%. Among private renters, the average HCIR has increased from 9% in the 1960s to 36% today. In contrast, the average HCIR among outright owners is approximately 5%. In 2020, the Affordable Housing Commission proposed a definition of housing affordability which builds on the housing cost to income ratio by taking account of personal circumstances rather than market prices: ‘our measures are based on an affordability threshold at the point when rents or purchase costs exceed a third of net equivalised household income (and take account of related affordability issues, such as housing quality, overcrowding, adequacy of housing benefit, household size and regional variations)’. 

Research by Savills, carried out on behalf of the National Housing Federation and the Joseph Rowntree Foundation, in 2015 proposed the development of rented homes which would be accessible to a household in employment with rents based on the bottom quarter of local earnings, starting at a level based on 28% of that figure. The NPPF includes a standard method for calculating housing need which incorporates a housing costs to earnings ratio. Local planning authorities are expected to use the standard method when assessing local housing need as part of the Local Plan process. The standard method takes a baseline measure of projected household growth and adjusts this upwards, based on the ratio between the median house price in the area and the median annual earnings of full-time employees working in the area. 

The NatCen takes a residual income approach to defining and measuring housing affordability, based on the Minimum Income Standard (MIS) – this details the income that different households are believed to need to reach a minimum socially acceptable standard of living in the UK. The approach states that housing is affordable to a given household ‘if they can afford to pay for their housing and have enough left over to cover what is needed to reach the minimum income standard for their household type’. However, some households have such limited incomes so that they would be below this standard even if they were to pay no housing costs. The housing affordability measure therefore takes into account whether households are below the minimum income standard because of their high housing costs rather than because they have a low income. The analysis  presented back in 2016 revealed that at least one in five households in the private rented sector had unaffordable housing costs. 

A comparison between MIS in 2008 and 2018 found that while in 2008 the MIS calculations used social housing as a starting point in calculating minimum costs for all groups, its limited availability means that private renting is now used as the MIS benchmark for working-age people without children – and is becoming the only option for many with children too. In the original MIS published in 2008, groups said that social housing would meet the needs of all household types. However in 2014, when the budgets for households without children were rebased (i.e., redeveloped from scratch with new groups), this was thought unrealistic for working-age singles and couples, while still being considered the lowest-cost socially acceptable housing for pensioners and parents. While a substantial number of working-age adults without children live in social housing, many of these are in vulnerable groups such as those with disabilities or addictions. It is perceived that, in general, there is little prospect for most people without children to get allocated social housing.

Local planning authorities may require developers to include an element of affordable housing on site as a condition of granting planning permission. Sometimes known as ‘section 106 agreements’, these are legally enforceable obligations. In 2019-2020, more than 27,000 homes were delivered through such agreements, of which 3,800 were for social rent. The NPPF states that ‘where major development involving the provision of housing is proposed, planning policies and decisions should expect at least 10% of the homes to be available for affordable home ownership, unless this would exceed the level of affordable housing required in the area, or significantly prejudice the ability to meet the identified affordable housing needs of specific groups’. 

For too many people their homes are  in a poor state and unsuitable condition. The new homes being developed in rural areas tend to be detached and do not necessarily meet the housing needs of some members of our communities looking to downsize, buy their first home, or move into an adapted property. What more can be done to ensure new builds meet the stock type needed locally? Such is the lack of consensus over what affordability means in housing terms, there are suggestions that the concept should be abandoned on the basis that it is unhelpful for describing the difficulties some households face in meeting their housing needs. Some rural places are now seen as the preserve of the rich with too few homes available for affordable rent and/or shared ownership. How might we measure what affordability looks like in different rural places?  Rather than focusing on the number of new homes built, perhaps the balance should be on the location, tenures and affordability? 

What impact has COVID-19 had – and how can we build back better and level-up communities?

In a speech on the economy in June 2020, the Prime Minister, Boris Johnson, argued that “newt-counting delays in our system are a massive drag on the productivity and the prosperity of this country”, slowing down house building; and that in recovering from the COVID-19 pandemic, we would “build back better and build greener but we will also build faster”. The Government published its white paper ‘Planning for the Future’ in August 2020. The paper contained a range of proposals – from local communities being consulted from the very beginning of the planning process, to protecting valued green spaces for future generations by allowing more building on brownfield land; and building homes more quickly by ensuring local housing plans are developed and agreed in 30 months rather than up to 7 years, through to every area requiring a plan in place to build more homes. In parallel to the white paper, the Government also launched a consultation on changes to the current planning system. The proposed changes cover four policy areas. Firstly, setting developer contributions for first homes. Secondly, raising the threshold at which developer contributions would be sought [section 106] for a limited time period to 40 or 50 homes. Thirdly, a new system to allow the Secretary of State to grant planning ‘permission in principle’. And fourthly, amendments to the standard method for calculating housing need to include percentage of housing stock levels and an affordability adjustment. 

Numerous bodies have queried whether these new approaches will make it harder to achieve the Government’s target of 300,000 new homes a year and/or lead to the loss of the countryside. In response to an opposition day debate on local involvement in planning decisions in June 2021, Graham Biggs, Chief Executive of the RSN, described how: “proposals to reform the planning system are too simplistic and will not meet the many economic, social, and environmental needs of communities in rural areas. Residents and their parish councils must continue to be given a say about planning applications. A successful land use planning system needs to have both the ability and local flexibility to plan for rural communities which are sustainable in economic, social, and environmental terms, meeting the varied needs of small as well as large settlements. Current proposals set out in the Planning White Paper will need to be revisited and considerably revised if they are to deliver that objective.”

In response to COVID-19, the Government has already been making various changes to planning rules. Some of these changes relate to permitted development rights (PDRs), under which development may take place under a general permission granted by Parliament without requiring an application to the LPA for planning permission.  Other changes – introduced through the Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 – create new some use classes and abolish some old ones.  

In a blog for the NHF in July 2020, Lord Best described what the impact of COVID-19 might have on housing in rural areas. He identified the following trends: 

  • Young people working or living in rural areas – perhaps with parents in council housing or in accommodation linked to a farming job – may find it harder than ever to find a place of their own nearby. 
  • With our new willingness to work from home and commute less frequently, homes in the countryside seem destined to be more in demand. 
  • Older people who had been thinking about downsizing a home or garden that is becoming less accessible and more expensive may have a change of mind – a care home may be avoided at all costs in place of access to fresh air, space and sunshine. 
  • For families on lower incomes, greater insecurity around employment and/or the erosion of savings may make home ownership or shared ownership a distant dream. 

Urban flight?  

According to the Office for National Statistics (ONS), average UK house prices rose by 8.5% in 2020, despite the difficulties of physically valuing or viewing properties during periods of lockdown. In July 2020 the Chancellor announced the suspension of stamp duty on properties up to £500,000, a scheme was that due to end in March 2021 but has been extended to June 2021 when it steps down to £250,000, with the £125,000 threshold due to be reintroduced in September 2021. The Government has also announced a Loan to Value mortgage guarantee scheme intended to benefit first time buyers.  

A survey of buyers and sellers registered with Savills back in May 2020 found 51% of people in London were considering a move outside the city [compared to 42% for the same period of 2019] and 30% were more likely to consider a village or countryside location for their next move.

According to Hamptons International, in 2020 London leavers purchased 73,950 homes outside the capital, the highest number in four years. Collectively, Londoners bought £27.6 billion worth of property outside the capital this year, the highest amount since 2007 when London outmigration previously peaked.  This figure exceeds the total value of all homes sold in the North West last year (£24.8 billion). Sevenoaks recorded the biggest increase in the share of homes bought by Londoners with 62% of homes in the area bought by a Londoner, levels 39% higher than in 2019.  Other hotspots for Londoners included Windsor and Maidenhead (+27%), Oxford (+17%) and Rushmoor (+15%). 

 Rightmove reported a 126% increase in searches for village locations in 2020. Most of the top village destinations were still within a commutable distance to a city, but with the appeal of a quieter way of life. It is thought that homeowners living in cities have benefitted from strong house price growth over the years and are now able to trade up and move to the countryside. 

Research by Knight Frank and the Telegraph in June 2021 found market towns had been overlooked in the first lockdown  – where people wanted remote and rural locations – but surged during the second lockdown. The research identified 12 market towns which scored highly in terms of crime levels, healthcare, education, affordability, and having something for everyone: Spalding (Lincolnshire), Ashbourne (Derbyshire), Stratford Upon Avon (Warwickshire), Arundal (West Sussex), Shipston-on-Stour (Warwickshire), Northwich (Cheshire), Tewkesbury (Gloucestershire), Kendal (Cumbria), Tenterden (Kent), Knaresborough (North Yorkshire), Lymington (Hampshire) and Haslemere (Surrey). 

In March 2021, The Sunday Times published ‘the best places to live’ guide. The top listed rural places included Alnmouth (Northumberland), Charlbury (Oxfordshire), Denham Vale (Essex/Suffolk), Edale (Derbyshire), Isle of Eigg (Inner Hebrides), Surrey Hills, and Tisbury and the Nadder Valley (Wiltshire). The median house price varied from £299,950 to £675,000. 

Home improvements and do it yourself? 

As many of us have been spending so much time in our homes, we have become aware of how they do (and don’t) work for us. For some people, relying on our homes for everything – working, learning, relaxing, exercising, home schooling – and remaining in our property has led some of us to carry out home improvements. 

Kantar estimated that we spent some £4.94 billion on improving our homes between September and December 2020, £552 million more than during the same period in 2019. A poll by MADE found 68% of consumers shopped online for home items at least once a month during 2020 while almost 1 in 5 (19%) did so multiple times per week. 40% of respondents claimed to have bought new home accessories throughout lockdown, and the same number rearranged their furniture, in search of a fresh perspective. This resulted in MADE witnessing a notable interest from consumers for multiple products from art (+117%) to bedding (+122%) and bathroom accessories (+177%). Research by Habito found 62% of home owners intend to undertake home improvements in 2021 – with one-third planning to re-mortgage their home to fund the improvements.  

Generation(s) rent? 

As the impact of the pandemic on earnings and savings becomes clear, Paragon Bank has estimated that more than one million older people will end up renting by 2031. According to the English Housing Survey, people aged 55 years and over are the fastest growing cohort of renters – with some 609,000 renting in 2019, double the figure when compared to 2009. COVID-19 is seen to be accelerating trends amongst older people including rising divorce rates, poorer pension returns and men living longer. Some suggest there is a trend amongst older people for flexibility, simplicity and freedom that renting offers. 

Research from the Loughborough University found in the UK nearly two-thirds of people aged 20-34 years (some 3.5 million people) live in their family home, and this figure has grown during COVID-19 due to the impact of the pandemic on the mental and financial health of young adults. 

During the Spanish flu in 1918, people fled the metropolis for the countryside. COVID-19 is seeing a similar phenomena with some people wanting to move to the urban fringe and others moving to remote rural areas as they see a future of fully remote working. While some sectors of the economy have been struggling (e.g. hospitality, travel), the DIY / home interiors sectors have been booming. With many of us re-evaluating our lives and where we want to live, will current and planned housing stock meet the economic realities facing people wanting to live and work in the countryside? 

What more can be done to deliver the homes we need in the countryside? 

According to Lord Best, “in the post-coronavirus era, it looks as if the tried and tested solutions for meeting housing need remain paramount. More homes for social renting in small developments that target local people, and a few purpose-built bungalows for older people to free up family homes, can make a huge difference for the village”.

Successive Governments have focused on building new homes with the intention of the additional supply reducing prices. But we are not hitting our targets for new homes, and nor are prices falling. If the current system is broken, what can be done to fix it – and fix it in rural areas?   

The Rural Services Network is calling on the Government to produce a fully-funded, comprehensive rural strategy. Such a strategy should address: 

  • Bringing forward development sites at a price suited to affordable housing; 
  • Making sure such homes are, and remain, genuinely affordable. 
  • Planning new housing in ways which attract community support; and 
  • Ensuring the funding model for affordable house building stacks up. 

The RSN believes that for rural to be affordable places to live, the following initiatives are needed: 

  • A planning policy to fit rural circumstances – allowing affordable housing quotas where they are most needed. 
  • A realistic definition of affordable – to meet the greatest need for social rented housing. 
  • A dedicated rural affordable housing programme – to boost delivery by housing associations in small rural settlements. 
  • A bolstering of landowner and community support – to release land for rural exception sites, at prices and under the assurance that they will only over be for affordable housing. 
  • A replenishing of social housing – ensuring that right to buy sale proceeds are returned to Local Authorities so they can reinvest it and replenish the stock of affordable homes. 

In March 2021, the RSN launched ‘Revitalising Rural’ campaign. This sets out a number of key asks of Government to ensure rural areas are not left behind in the levelling-up agenda and that they are considered in post-pandemic policy making. On housing, the campaign makes specific asks around affordable housing quotas, grant funding, community-led housing, exception sites and the proceeds of the sales of affordable homes.   

The Commission on Housing, Church and Community was launched in April 2019 with a remit to re-imagine housing policy and make recommendations to Government; and to look at what actions the Church of England could take with others to tackle the housing crisis. The Commission published it report ‘Coming Home’ in February 2021. This explored some of the reasons for the mis-match between activity and outcomes. The Commission echoed the need for a long-term housing strategy: ‘What does the Government aspire to for these various tenures by 2030 and 2040? What does the Government aspire to in terms of the affordability of housing, owned and rented, defined in relation to household incomes? What does the Government aspire to in terms of the condition, and environmental sustainability of the housing stock? Without clarity on these longer terms goals, the housing policies of successive governments have been characterised by short-term interventions and announcements’ (page 75). The Commission also called for investment in existing housing stock – with a focus on safety, on ensuring private rented homes are affordable to people on low incomes and a review of social security changes. The Church of England has developed a range of theological resources to make connections between faith and housing. Much of this work is building on the Faith in Affordable Housing project, which works with all denominations in England and Wales to release surplus land or buildings for affordable housing. 

The Rural Housing Alliance (RHA) and National Housing Federation (NHF)  have developed a 5-star plan for housing associations and the wider rural housing sector. Endorsed by the RSN, the plan focuses on delivering more quality homes that meet local needs through partnerships with rural communities and landowners. Under the plan, housing associations and rural stakeholders that sign up pledge to: 

  1. Work with and for rural communities, in accordance with the Rural Housing Alliance pledge. 
  2. Increase the current level of housing supply in rural communities by 6% per year for each of the next five-years. 
  3. Bid for at least 10% of Home England investment to deliver new homes in rural areas. 
  4. Ensure that homes are delivered benefit the local economy, including the farming and food economy. 
  5. Meet the needs of rural communities and contribute towards five key tenures, as appropriate – homes for affordable rent, market rent, affordable home ownership, self-build and market sale.

The Affordable Housing Commission recommendations for rural areas chime with the RSN and RHA in asking for regulatory reforms and tax incentives to encourage land owners to assist with housing provision for local people, with housing remaining affordable in perpetuity; and permitting Local Authorities to require some affordable housing for local people in rural schemes of less than 10 homes.

What emerges from all of this work is the need for a clear plan or strategy for rural areas that not only considers housing in a post-COVID, longer-term perspective, but also seeks to support those in the greatest need and links housing explicitly to other policy areas such as work, health and education. It needs to move away from crisis intervention to prevention – for example, we tend to respond to immediate needs particularly around ill health, food banks, homelessness, rather than thinking more holistically about providing affordable housing in rural places.       

The National Planning Policy Framework encouraged larger scale developments and significant extensions to existing villages to meet supply. This led the Government to support a number of new garden villages across the country. This originally sought to support 23 places to deliver 200,000 homes by the mid-2020s. According to the prospectus, ‘this is not about creating dormitory towns, or places which just use ‘garden’ as a convenient label. This is about setting clear expectations for the quality of the development and how this can be maintained (such as by following Garden City principles). We want to see vibrant, mixed-use, communities where people can live, work, and play for generations to come – communities which view themselves as the conservation areas of the future. Each will be holistically planned, self-sustaining, and characterful’ (page 5). In June 2020, Transport for New Homes published research querying if 20 of these green communities were at risk of becoming car-dependent commuter estates, estimating they may develop up to 200,000 car-dependent households. One of the recommendations contained in the report was to build close to existing town centres or create strings of developments along public transport routes, rather than scattering developments around the countryside.

Broadway Maylan has developed the concept of the ‘reimagined village’ in seeking to reinvent the notion of village appeal and to expand it to broader target groups. This calls for the future village to be a valid economic force in its own right – connected, smart and green; and with something to offer everyone, irrespective of age, background, income, location or work/professional aspirations. They argue a number of components should be considered when designing a village, including scale and size; flexible and contemporary aesthetic housing; green space for active and healthy lifestyles; minimising environmental impact by building for a zero-carbon future; having an integrated community hub; providing places for modern working patterns; and introducing a range of sustainable transport infrastructure. 

CPRE has long advocated for a ‘brownfield first’ policy. CPRE’s State of Brownfield 2020 reveals how there is enough brownfield land for 1,061,346 housing units over nearly 21,000 sites, covering almost 25,000 hectares. There is currently planning permission for 565,564 units, or 53% of the total brownfield housing capacity. And there is currently land provision for over 1.5 million homes using brownfield land and other land with planning permission, providing enough land to meet the government’s 300,000 homes a year target. According to CPRE, an approach to development that focuses on brownfield first would help to deliver homes where people really need them; closer to services, workplaces, public transport and shops. This would help us to protect and enhance the green spaces that are crucial for tackling the climate emergency, and safeguarding health and wellbeing. 

Along similar lines, the Local Government Association and Cabinet Office have been running the One Public Estate programme since 2013 to support public bodies to get more out of their assets – including new homes and jobs.  Covering the period up to 2019-2020, the programme was set to release land for some 25,000 homes.  The programme cites the work of the London Borough of Croydon in identifying 15 publicly owned sites for regeneration which will see the development of 900 new homes and 7 new community facilities over a 5-year period. Analysis undertaken by the New Economics Found (NEF) found only 15% of homes being built on public land were classified as ‘affordable housing’; and only 2.6% of the homes being built were for social rent. 

The Climate Change Committee found residential housing is the fourth largest contributor to UK emissions, accounting for 14% of the total. Two-thirds of homes currently have an EPC rating below the Government target of C and above. 2.4 million households (10% of all households) are living in fuel poverty. Only 1% of new homes are built to the highest energy rating. The UK’s legally binding climate change targets will not be met without near-complete elimination of greenhouse gas emissions from buildings – and efforts to adapt housing stock are lagging behind.   

How can we provide more homes in the countryside without ruining it? A significant amount of land in public ownership is not needed to deliver public services and similarly, church/faith, charitable and private landowners may also have assets that could be harnessed to support the delivery of more affordable homes in rural places. While some organisations advocate for new rural settlements, others suggest we should utilise brownfield and protect the greenbelt. Rather than thinking on a settlement by settlement basis, how can we take account of the functionality and linkages between rural places? 

If many of us are going to continue to live and/or work a bit differently, what will that mean for our rural communities? Watch this space. 

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Rural Housing Week is a campaign that takes place annually to showcase the work that housing associations do in rural communities. This year it is taking place 5-9 July. More information about the campaign and how to join in can be found here. 

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Jessica is a senior research fellow at The National Centre for Rural Health and Care (NCRHC) and researcher/project manager at Rose Regeneration. Her current work includes supporting health commissioners and providers to measure their response to COVID-19 and with future planning; providing the secretariat for the Parliamentary Inquiry into Rural Health and Care; and evaluating two employability programmes helping people furthest from the labour market. Jessica also sits on the board of a Housing Association that supports older and vulnerable people – and is developing schemes in rural places. 

She can be contacted by email jessica.sellick@roseregeneration.co.uk. 

Website: http://roseregeneration.co.uk/https://www.ncrhc.org/ 

Blog: http://ruralwords.co.uk/ 

Twitter: @RoseRegen 

Commercial Property

Local Authority investments in commercial property – are they cash generators or debt burdens?

Since the mid-2010s some Local Authorities have been building up portfolios of commercial property – from hotels and farms to shopping malls and leisure complexes – putting the profits that are generated into their revenue budgets. With Government now consulting on the lending terms of the Public Works Loan Board – a lending facility used by many Local Authorities to build up their portfolios – and the coronavirus pandemic leading many tenants to close and forgo rent payments; will Local Authority property portfolios go from cash generators to cash draggers and what impact might this have on public services? Jessica Sellick investigates.

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Local Authorities have long owned buildings that could serve a commercial purpose. Indeed they often use commercial structures to advance their core activities of delivering public services, housing and regeneration for the benefit of their citizens. However, recent reports suggest some Local Authorities have started to use low-cost loans from the Public Works Loan Board (PWLB) to buy investment property for rental income. The Government is now consulting on ‘debt-for-yield’ activity – recommending that Local Authorities wishing to buy investments primarily for yield should remain free to do so but not be able to take out new loans from the PWLB to do it. What decisions over capital projects are some Local Authorities pursuing – and how are they financing them? 

How much can a Local Authority borrow? Local Authorities are required to distinguish between capital and revenue funding in their accounting. Borrowing and investment are matters of Local Government Capital Finance, with practice in this area governed by The Chartered Institute of Public Finance & Accounting’s (CIFPA) Prudential Code for Local Authority Finance. In addition, Local Authorities must take account of CIFPA’s Treasury Management Guidance for Local Authority funds and the Ministry of Housing, Communities & Local Government (MHCLG) guidance on Local Authority investments and on Minimum Revenue Provision (MRP). 

‘Capital expenditure’ is defined in the Local Government Act (2003) as “expenditure of the authority which falls to be capitalised in accordance with proper practices”. Government provides an annual allocation of capital funding to Local Authorities alongside the annual distribution of revenue funding set out in the Local Government Finance Settlement. While Local Authorities can access finance for infrastructure from a number of sources, the quantity of expenditure that is often required for capital projects means that most Local Authority capital finance is obtained through borrowing. 

Under part 1, chapter 1, of the Local Government Act (2003) a Local Authority may borrow for any purpose relevant to its functions or for “the prudent management of its financial affairs”. Every Local Authority must set a total borrowing limit for itself in accordance with the principles of the Prudential Code. This borrowing limit is related to the revenue streams available to a given Local Authority, and the extent to which it can repay debt. Local Authorities are prevented (by law) from using their property as collateral for loans. However, there is some flexibility in exactly how individual Local Authorities set their borrowing limits. The Prudential Code, for example, does not contain a formula for Councils to make an exact calculation of prudential limits; with Local Authorities relying instead on the judgement of their chief finance officers and on ‘generally accepted accounting practices’. 

The Prudential Code requires all Local Authorities to draw up rolling three-year plans for capital expenditure. These plans typically cover all capital spending apart from housing. While Local Authorities may borrow money from a number of different sources, they cannot breach the overall borrowing limit they have set. 

Under section 32 of the Local Government Finance Act (1992) Local Authorities are required to maintain an appropriate level of reserve funding. As per the Prudential Code, the judgement as to an appropriate level of reserve lies with individual Local Authorities – there is no standard formula for identifying the correct level.  

Guidance on Local Government investments issued by the MHCLG in 2018 requires Local Authorities to prepare an investment strategy annually (or include the required details in their treasury management strategy). Each strategy must explain how their investments (including commercial property portfolios) relate to their core purposes; and quantitative indicators to allow Elected Members and the public to assess a Local Authority’s risk exposure as a result of its investment decisions. Importantly, the guidance requires an explicit statement to be included in each strategy about the degree to which commercial income underpins the delivery of services – and that each Local Authority must set annual limits for the proportion of gross debt compared to net service expenditure as well as the percentage of net service expenditure that comes from commercial income. This follows up on the findings of a Public Accounts Committee (PAC) Inquiry in 2016 which found Local Authorities were investing less in physical assets such as libraries, museums and parks; and spending more on commercial investments such as property. The PAC called on the Department for Communities and Local Government [now MHCLG] to strengthen its understanding of the capital issues faced by Local Authorities, and to develop a cumulative picture of risks and pressures across the sector. This formed part of a call to change key aspects of the codes and governance in line with a view that Local Authorities should not borrow to invest solely for yield.  

Who can a Local Authority borrow from – and how much are they borrowing? Local Authorities seeking to develop property portfolios do so using Statutory Powers that relate to their wider purposes – such as regeneration or economic development. 

Section 4 of the Localism Act requires anything done for a purely commercial purpose must be carried out by a Limited Company. However, if a Local Authority is using powers related to regeneration or economic development to buy a local shopping centre, for example, it is not acting purely in a commercial purpose and can own it directly. 

The Local Government Act 2003 permits Local Authorities to pursue certain forms of commercial activity through a company structure. The General Power of Competence, introduced in the Localism Act, permits a Local Authority exercising it with the (a) power to do it anywhere in the United Kingdom or elsewhere; (b) power to do it for a commercial purpose or otherwise for a charge or without charge; and (c) power to do it for the benefit of the authority, its area or persons resident or present in its area. Again, as Local Authorities are looking to manage commercial property as an adjunct to other functions rather than purely for financial gain a company is not required.  

Local Authorities can fund commercial property acquisitions using money from capital receipts, by using revenue funding, or through borrowing and meet debt servicing costs from revenue funding. Local Authorities are able to choose between different sources of external borrowing.  

In recent years the majority of loans taken out by Local Authorities have been supplied by the Public Works Loan Board (PWLB). The PWLB is located within the Government’s Debt Management Office (DMO), part of HM Treasury, and its funds are available at lower rates than the market. The PWLB publishes data listing borrowers, with the amounts advanced, the rate of interest, the term of the loan and length of time before the loan will be fully expended. 

Alternative borrowing mechanisms include:  

  • Tax Increment Financing (TIF) which permits Local Authorities to borrow money for infrastructure projects against the anticipated increase in tax receipts resulting from the infrastructure – for example, Local Authorities might borrow against their income within the Business Rate Retention Scheme or against the rate within a specific geographical area such as an Enterprise Zone. 
  • New Development Deals (NDD) where a geographical area is not subject to future levies and resets thereby creating an area and stream of revenue outside of the Business Rate Retention Scheme. 
  • An ‘earn-back scheme’ which has been enacted in some City Deals whereby Local Authorities can make investment up-front if additional GVA is created relative to a baseline. 
  • Through bonds, which allow Local Authorities to raise substantial sums of capital immediately, and repay it at a specified point in the future. Some Local Authorities have obtained credit agency ratings, allowing them to borrow on the open market; and for smaller Local Authorities through the UK Municipal Bonds Agency which is owned by 56 shareholding Local Authorities and has offered to obtain a competitive price for bonds at a lower rate of interest than the Public Works Loan Board. 

The MHCLG publishes statistics annually on Local Authority capital expenditure and receipts. The latest statistical release covers the financial year April 2018 to March 2019. This shows capital expenditure by Local Authorities in England totalled £25.9 billion in 2018-2019; an increase of £202 million (or 1%) in real terms compared to 2017-2018. When this figure is broken down by economic sector, acquisition of land and existing buildings totalled £4.4 billion, up from £326 million (or 8%) in real terms when compared to 2017-2018. The data also reveals how Local Authorities are financing a greater proportion of their capital expenditure from prudential borrowing and capital receipts rather than from capital grants and revenue resources. For example, the proportion of capital expenditure financed by prudential borrowing has increased from 22% in 2014-2015 to 38% in 2018-2019. Over the same period, the proportion of capital expenditure financed by capital grants has fallen from 45% to 35%.  Actual debt held by local authorities was recorded at £104.46 billion at the end of June 2019. At the beginning of 2017-2018 Local Authority external debt stood at £110.1 billion – but at the end of 2017-2018 Local Authority external debt stood at £118.3 billion (an increase of 7.4%). 

The data does not provide a clear indication of the type of acquisition made. Similarly, the PLWB does not currently keep defined records of the purpose of each of the loans it makes to Local Authorities.  

In February 2020 the National Audit Office (NAO) published a report on ‘Local Authority Investment in Commercial Property’. This estimated that Local Authorities spent £6.6 billion on buying commercial property between 2016-2017 and 2018-2019 – this figure is 14 times more than in the preceding three years. 40%-90% of spending between 2016-2017 and 2018-2019 was financed by borrowing. Local Authorities spent an estimated £3.1 billion on offices, £2.3 billion on retail property [including £759 million on shopping centres or units within them], and £957 million on industrial property. 38% of all spending between 2016-2017 and 2018-2019 was outside of the local area. The NAO found the increase in commercial property investment to be concentrated in the South East, and also amongst District Councils (comprising 51% of commercial property spending between 2016-2017 and 2018-2019). For example, 49 out of 352 Local Authorities accounted for 80% of commercial property spending between 2016-2017 and 2018-2019. 17.5% of all commercial property acquisitions by value in the South East between 2016-2017 and 2018-2019 were made by Local Authorities. 

Why are some Local Authorities investing in commercial property? Since the mid-2010s some Local Authorities have sought to build up portfolios of commercial property. Various reasons may account for this, including (but not limited to): 

  • A reduction in Government funding provided to Local Authorities. The National Audit Office (NAO) estimates a real-terms reduction in Local Authorities’ spending power [from Government funding and Council Tax] of 28.7% between 2010-2011 and 2019-2020. Analysis from the Local Government Association (LGA) found in one year, between 2016-2017 and 2017-2018, Local Authorities had to absorb a funding shortfall of £2.4 billion – with further analysis showing a potential funding gap of £7.8 billion by 2025. Government provides a Revenue Support Grant (RSG) to Local Authorities to finance revenue expenditure on services. According to MHCLG, while the RSG has declined since 2015-2016 this should be viewed in the context of increased funding from business rates retention and other grants such as the Better Care Fund. 
  • Changing approaches to asset management whereby some Local Authorities have shifted away from disposing surplus land and buildings towards using them as assets and as ongoing sources of revenue – with this approach facilitated through the Government’s One Public Estate programme and in some devolution deals.  
  • As Local Authorities have been given more flexibility and freedoms (e.g. through the Localism Act) this has fostered a more commercial culture amongst officers and Elected Members, leading  some Councils to be innovative and entrepreneurial in obtaining more money from commercial activities rather than relying on ‘traditional’ sources such as council tax and business rates. Interestingly a report on insourcing by APSE in 2019 suggested that a rise in insourcing was being driven by a desire to improve service quality and flexibility amid the need for greater control over allocating resources, including commercialisation in order to raise revenue.  
  • Local Authorities have purchased commercial property to support local regeneration and economic growth – bringing unused or underused property back into use for the benefit of their citizens.  

What are the benefits – and the risks? Some commentators highlight how Local Authorities have long held large property holdings which they have used for social, economic and commercial purposes; and that the annual return rates on commercial property, and the spread between the loan rate and the return rate on letting out the property, generates profit for Local Authorities to use for the benefit of their citizens. For example, a report by the Audit Commission back in 2000 described how “typical non-operational properties include high street retail outlets, markets, industrial estates and shops on housing estates, held primarily to generate income or to stimulate economic or social development” (page 7). Some Local Authorities have bought commercial property to use the returns to deliver new homes and infrastructure, to respond to private sector withdrawal or market failure (e.g. high streets), to support social enterprise and community business and/or for wider place-making. In many instances it is the spread between the loan rate and the return rate on letting out the property that enables the Local Authority to make a profit to reinvest in local services and activities.  

In 2017 the Local Government Association (LGA) published practical guidance on how Local Authorities could turn their commercial plans into reality. The guidance described trading and commercial property activity as “a particularly specialist activity where advice should be sought, if necessary, from a range of experts such as lawyers, property experts and accountants. Councils considering investment activity should be clear around long term risk and benefit modelling, governance and what specialist capabilities may be required to support the activity. They should be aware of the accumulated effect of every decision they take as well as the risks of each individual decision” (page 36).

More recently, the NAO in its report referred to ‘specific risks’ associated with each individual property [such as the length of the lease or the financial strength of the tenant] and ‘systematic risks’ [such as movements in markets e.g. people shopping online leading to growth in vacancy and void rates of retail units]. 

Some of the key risks for Local Authorities using commercial property to generate revenue are around: 

  • A downturn in the property market – leading to falling rents, higher vacancies, falling property values and causing financial pressures. 
  • Any Government intervention setting limits on the commercialisation strategies available to Local Authorities. 
  • A lack of skills and expertise (commercial awareness) within Local Authorities about the market and making investments leading to poor acquisition decisions. 
  • Liquidity – if a Local Authority needed to meet immediate cash requirements, property cannot be as quickly realised in the same way as other financial instruments.
  • Local Authorities are legally required to set a balanced budget – if commercial income is underpinning the delivery of services does not yield the required return, how will they overcome these broader losses of revenue? 

On 9 October 2019 the Government announced it would raise the interest rate on new loans from the PWLB by 1% over gilts over and above the existing interest rates. This decision was explicitly linked to substantial borrowing for commercial investments: “Some local authorities have substantially increased their use of the PWLB in recent months, as the cost of borrowing has fallen to record lows”. For some Local Authorities the rate rise was seen as making some large-scale regeneration schemes costlier, unviable, or requiring more time to obtain a return on investment – with some commentators suggesting it may lead Local Authorities to seek alternative sources of finance (e.g. private sector lenders, Municipal Bonds Agency).  At the same time of the announcement Government increased the cap on the total amount Local Authorities can borrow from the PWLB from £85 billion to £95 billion.

Are we reaching a tipping point?The NAO has highlighted how some Local Authorities would be badly exposed in the event of an economic recession or property crash, describing how “in the last recession UK commercial property values and market rental values both fell. More recently, systematic risk is perhaps apparent in the performance of the retail sector with the shift to online sales, among other factors, leading to growth in vacancy and void rates” (page 41).  

Analysts point to past examples of Local Authorities suffering financial difficulties – the interest rate swaps in the late 1980s/1990s, investments in Icelandic banks in the late 2000s, and LOBO loans in the mid-2010s. However, these episodes affected a small number of Local Authorities and none generated long-term financial strain or losses even though they led to serious concerns in the short term. Nor did they require Local Authorities to raise Council Tax substantially to offset a lack of funds. 

Yet all of these episodes are very different from the novel coronavirus (COVID-19).  Emerging evidence highlights the impact of the pandemic on bricks and mortar.  Coutts reveals how the retail sector was already heading into recession before the pandemic due to the rapid adoption of online shopping and the change in shopping habits. They predict this downward trend in retail property is likely to continue with only retail-to-residential conversions and specialist event venues surviving; warehouses and logistical centres will continue to expand; and the period of people working from home may lead companies to change working practices and reduce office space. The real estate developer Hammerson revealed that it had only received 35% of second quarter rent from its outlets – and it had also received requests from tenants for rent deferrals, monthly payments and waivers. Coronavirus is expected to create a hole in Local Authority income as a result of lost revenues from commercial property. This is further compounded by the loss of other revenue streams (e.g. planning fees, car parking). 

In March 2020 the Government announced £1.6 billion package for Local Authorities to respond to service pressures including increasing support for adult social care and services that support the most vulnerable; a £500 million Council Tax Hardship Fund of discretionary support to help economically vulnerable people and households; £3.2 million of initial emergency funding to reimburse Local Authorities for the cost of providing accommodation and services to rough sleepers; the deferral of £2.6 billion in Local Authority payments of the Central Share of retained business rates; and brought forward £850 million of social care grants. In April 2020 the Government announced a further £1.6 billion of additional (and un-ring fenced) funding to support Local Authorities to meet additional pressures arising from the pandemic and to help them to continue to deliver frontline services. 

While the impact of coronavirus on Local Authorities – including those with substantial commercial property portfolios – depends on how long the lockdown last for and the gradual steps to a ‘new normal’ that the Government will implement; scale really matters here. The bigger the spend, the bigger the borrowing, the greater the risk. And these risks become even greater where Local Authorities are dependent on income from commercial property portfolios to repay debt or fund services. They may also be tying up Local Authority money and resources that could be diverted elsewhere. 

Because we do not have a clear picture of the scale of investment of public funds in commercial property, where it is concentrated and how it is being financed, considering the implications for rural residents and businesses is difficult.  According to the Rural Services Network urban authorities in 2016-201717 received 40% more (£116) per head in the Government’s Settlement Funding Assessment compared to rural authorities. We also know that it costs more to deliver services in rural areas. What we do not know is whether this leads rural Local Authorities to borrow more than their urban counterparts, if and how much they are investing in commercial property,  what the income from this investment has been used for, and what impact COVID-19 will have on these portfolios and Local Authorities now and into the future. The longer the pandemic persists, the greater the chance of a more prolonged impact on the economy including commercial property markets. In the meantime, we need to improve the data and evidence base: what are the trends in capital strategies, buying out of area, the contribution of commercial income to service expenditure, the scale of contingency, and which Local Authorities are vulnerable and what can we do to manage the risks?  

When making any investment we are reminded that past performance should not be taken as a guide to future performance. The value of investments, and the income that we get from them, can go down as well as up and we may not recover the amount of our original investment. 

Affordability is a key duty underpinning the borrowing arrangements contained in the Prudential Framework. In practice, some Local Authorities have taken on general fund debt in high multiples of core spending power and viewed it as affordable because of the income their commercial property investments generate. The experiences of coronavirus, seen within the context of already sustained financial pressure, may mean that some Local Authorities (inadvertently) test the limits of compliance. 

As Local Authorities have built up their commercial property portfolios there has perhaps been a lag in governance and oversight from Government.  In March 2020 HM Treasury launched a consultation containing proposals to (a) require local Authorities that wish to access the PWLB to confirm that they do not plan to buy investment assets primarily for yield; (b) publish guidance defining activities that the PWLB will no longer support; and (c) standardise the information currently gathered through the application process for the PWLB Certainty Rate to confirm with Local Authorities that their plans conform with the guidance. The consultation runs until 4 June 2020 and you can submit responses here.  

As we have to get used to a ‘new normal’ Local Authority repayments to the PWLB and other borrowers may start to hurt. Will this lead some Local Authorities to increase taxes or reduce public services? Watch this space. 

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Jessica is a researcher/project manager at Rose Regeneration. Her current work includes helping public sector bodies to measure social value; evaluating an employability programme; and working with 8 farming organisations across England on a Defra funded project on farmer resilience. She is also a senior research fellow at The National Centre for Rural Health and Care (NCRHC) and sits on the board of a Housing Association that supports older and vulnerable people. 

She can be contacted by email jessica.sellick@roseregeneration.co.uk. 

Website: http://roseregeneration.co.uk/https://www.ncrhc.org/ 

Blog: http://ruralwords.co.uk/ 

Twitter: @RoseRegen