Local authority leaders have warned Whitehall that the 2019 Spending Review will be ‘make or break’ for frontline services as authorities face a funding gap of almost £8bn by 2025. At its annual conference in Birmingham in July 2018, the Local Government Association (LGA) launched a campaign for increased investment to support struggling local services. Since substantial reductions in their central government funding began in 2010, local authority approaches to asset management have changed. Authorities are now seeking to use assets as sources of ongoing revenue, often in preference to disposing of surplus land and buildings for housing or other use. The latest funding gap suggests that this will be more important than ever, if local services are to be bolstered.
The government has encouraged this approach, via initiatives such as One Public Estate and the option to create Land Commissions in devolution agreements. The Public Works Loan Board continues to make loans available at relatively low interest rates. However, CIPFA’s Prudential Code was updated in 2017 and now requires an authority’s capital strategy, and its associated risks, to be formally reported in order to demonstrate correct due diligence.
In a 2017 survey to which 265 councils responded, a third had invested in property since 2010, and half of these were district councils from the South-East. Of the 265 councils, ten accounted for 60 per cent of the expenditure reported. UK commercial property acquisition has been most marked among English local authorities thus far.
Although income generation is an important factor, this is not all about making money. It’s as much about local authorities taking back the control of their town centres (new retail investment, for example) or providing much-needed housing.
Targeted real estate investment can boost regeneration and add both social and economic value. Income can be reinvested in the local area, or used to fund local services.
Authorities may be considering one or more of the following approaches: estate optimisation through rationalisation and re-organisation, possibly via One Public Estate; property investment portfolios (either through investment in a vehicle that purchases assets as a shareholder, or by purchasing the assets directly); development and regeneration companies, and public-private partnerships.
Here in the Midlands, authorities are increasingly exploring ways of getting a better return from their assets, while fulfilling their social and community remit – analysing their property portfolios from both an investment and an income perspective. The region has been successful with One Public Estate applications: 19 North Midlands, ten Staffordshire, nine West Midlands and eight Leicester authorities scored in the last funding window.
We’re seeing some authorities in the region exploring, planning or already having set up a development company or other vehicle. Examples include Stoke-on-Trent City Council’s ALMO Fortior Homes; Solihull Metropolitan Borough Council’s Urban Growth Company; City of Wolverhampton Council’s ALMO Wolverhampton Homes; Derbyshire County Council’s development company Derbyshire Developments, and Place Partnership, an asset management collaboration between Hereford & Worcester Fire and Rescue Service, Redditch Borough Council, Warwickshire Police, West Mercia Police, Worcester City Council and Worcestershire County Council.
Authorities face significant challenges, including reviewing the estate, the complexity of the various funding routes, the selection of appropriate vehicles, regulatory compliance, governance, tax implications, future-proofing the vehicle’s structure, the search for an appropriate delivery route and delivery partners, and the need for property expertise. There’s no ‘one size fts all’, and there must be a willingness to adapt to the environment and think long-term, beyond the next election cycle, to 10 to 15 years ahead.
Drawing on substantial public sector experience, the Faithful+Gould team is focused on helping local authorities to achieve a balance between quality and affordability, providing a strategic review of the property portfolio and ensuring the best product for each site.
At delivery stage, we are working with clients via the Pagabo National Framework Agreement and other frameworks, providing clerk of works, employer’s agent, cost management, project management and design services on a variety of development schemes.
We are also collaborating with colleagues in the top accountancy and legal firms, combining our joint strengths. These partnerships aim to advise local authorities on the establishment, growth and management of their property holdings, mitigating the risks highlighted in the Enterprising Councils guidance. Multidisciplinary services include the optimum funding/delivery vehicle, technical due diligence, support during the delivery phase, and help with the asset management and performance monitoring considerations.