Nicholas Boys Smith is the Director of Create Streets, a social enterprise encouraging urban homes in terraced streets not multi-storey buildings

Blink and you’d have missed it but there in the detail of the Chancellor’s Autumn statement was an interesting line:

“The government will explore options for kick starting the regeneration of some of the worst housing estates through repayable loans.”

What does this mean? Is this just another excuse to spend hard-pressed taxpayers’ money dreamt up by the official machine and snuck through Ministers? Well, the Chancellor and his team are a little too savvy for that so I don’t think so. We in Create Streets believe and hope that it is a potentially very economically rational response to the housing crisis in London and elsewhere.

Put simply, London needs new homes. The problem is not just that there is limited space but that despite the desperate need for new housing, specific new housing projects often encounter local opposition – with long consequent delays. Just look at the controversy surrounding redevelopment at Earl’s Court or the Heygate Estate in Southwark.

Around 360,000 multi-storey homes were built in London post-war. Many were built in large multi-storey slab or tower blocks. Most were built not in ‘conventional’ streets but in more complex spatial arrangements (cul-de-sacs, semi-private courtyards, funky linked spaces etc). This type of housing is provably less popular and is correlated with poor social outcomes even when you adjust for socio-economic status. As built it is not particularly high density and it has proved very expensive to maintain while losing nearly all embedded value.

In short, most post-war housing in London has proved to be both a social and economic mistake while also encouraging social segregation. The physical space where the Aylesbury Estates in Southwark is now, was more socially diverse before it was built. For people who can afford to choose, choose normal streets. You can see our research on these points here.

Due to poor quality, much post-war social housing will need to be redeveloped during the next 10 to 30 years. Tragically current redevelopment is costing taxpayers a lot and is often repeating the errors (albeit less savagely) of 40 years ago. Perversely, current rules in London are even sharply biased against high density streets and squares that have proved so popular over so many years. We are building homes for planners not homes for people.

How could we improve estate regeneration, reduce the ultimate cost to the taxpayer while also helping economic growth, social integration and living standards?

Well, data from the Halifax, Savills, University College, London and the Brookings Institute all indicates that, quite apart from the social benefit, the long term returns of developing low density post-war estates as attractive, high-density ‘normal’ and well-connected terraced streets of houses and medium rise flats could be fantastic. Data from the Halifax, for example, show that ‘traditional’ pre-1919 homes in a ‘conventional’ street format in London have risen by 1,284 per cent in price since 1983. Their more modern contemporaries have risen by half as much. Savills research has also shown how three conventional high-density street-based developments generate 32 per cent more value per hectare and nine per cent more value per developed square foot than the type of more complex less ‘conventional’ development which is still, sadly, typical.

Other Savills research shows how parts of London which are well-connected and in the form of high-density terraced streets and squares are more valuable, other things being equal, than areas which are not.

Meanwhile, data from Space Syntax (a spin off company from University College, London) shows conclusively how the most valuable streets are the best connected ones (with an 88 per cent correlation between spatial accessibility and rateable value per square metre). Research by the Brookings Institute corroborates this in the US. So does our own research (see pp. 53-4 of our report). We will be publishing more evidence in 2014).

However, if the potential long term returns from estate regeneration in London are excellent why is nothing happening? It is partly because the politics of regeneration are so hard. Put simply most people just don’t like most recent developments. It is also because the short term cash flow and returns from this type of estate regeneration are pretty bad. This is due to the cost of demolition, the time required for the additional value of an attractive ‘place’ to feed through fully to sale prices & market rental values and the need to ensure all those in social housing on the current site are re-housed.

The future social consequences of this financial and political problem are worrying. Many new large scale regenerations are being done at a sort of uber-density that is unpopular. And they are using building types that simply repeat many of the errors of the 1950s-70s. Some multi-storey housing in East London, less than 15 years old, is already becoming dense repositories for the unintentionally homeless (see pp. 120 of this book which shows how the process started almost immediately). We are risking repeating the errors of 40 years ago. This cannot be wise.

Create Streets has therefore started to explore different ways in which the government could catalyse redevelopment of large, public sector housing estates whilst ensuring that its capital (and it’s cost of capital) is fully returned. Based on our interim analysis we believe that this is possible. We hope that this might answer the challenge set out in the Government’s Autumn statement.

One option would be to create a revolving fund from central government to owners of large estates or allow the Public Work Loans Board to lend for this purpose.

  • Local councils or Housing Associations could draw on the fund if commissioning large scale street-based redevelopment.
  • It is a loan not a grant – with a cost of capital rate of interest, perhaps linked to ‘Prudential Borrowing’ rates. Possibly rates could be more generous if there was some exposure to any capital value increase in the site.
  • The fund should be specifically available only for redevelopment of estates where running costs, the cost of refurbishment and the state of buildings have made the current financial situation unsustainable, making redevelopment the most rational long term approach.
  • The loan would be paid off using a mixture of surpluses of rent over running costs, private market sales and recycled Right to Buy receipts.
  • This would require the existing rules for the re-use of Right to Buy receipts being amended to allow future receipts from sales in the redeveloped estate to be hypothecated to repayment of such a loan.
  • In a ‘typical’ development our high level indicative modelling implies that if density could be increased, the income from rents and sales could pay back the loan from central government over a medium term timescale.
  • That said, after around two years it might be possible for the government to exit its position and hand over to investors seeking stable, long term, sterling-referenced property investments with good security (e.g. pension funds).
  • The scheme might allow tenants to move if they want with outright purchase of their existing tenancy. This would be voluntary and allow sales of new build properties. This would be particularly valuable in Inner London.

Such a fund would not be dissimilar to the existing Get Britain Building fund expect that it would be aimed at estate redevelopment not stalled projects.

Nothing in life is too good to be true. And Create Streets does not pretend that there are no complexities in defining how such a fund could be used. Nor is there no risk to the Exchequer if development is badly managed or executed. In a way that is the point. The Government is taking some of the risk of long term regeneration. But done well, we estimate we could provide an additional 250,000 homes in London, at no accountable cost to the Treasury whilst also helping build new, more socially mixed, neighbourhoods in London along the lines of the most popular and valuable parts of the capital.

London property risks becoming too expensive to its own good or for the good of the British economy. Surely a massive increase of supply of good normal housing that real people want to live in is an idea worth piloting in the budget for March?