Making New Towns financially viable

The Labour government’s New Towns programme promises to deliver new homes at scale and at pace amid significant pressure on the UK’s housing market. With The Centre for Cities reporting that a backlog of 4.3 million homes are missing from the national housing market, and only 221,070 net additional dwellings built in 2023-24, achieving this vision will be critical to providing sufficient housing while supporting national economic growth.  

With the New Towns Taskforce determining exactly where New Towns would be best located, it falls on chosen local authorities themselves to meet the challenge of delivery head on. We know from our work across residential regeneration that perhaps the biggest challenge is securing financial viability across a major programme’s lifecycle.  

With New Towns taking anywhere up to 20 years to deliver, a lack of financial viability at any stage can be disastrous. Whether through failing to secure adequate investment at the right time, achieve sustainable cashflow, or properly anticipate economic shocks, poor financial strength can put the entire programme at risk. 

 It is therefore crucial that housing authorities put achieving a financially viable programme at the heart of their New Towns delivery programmes.   

Delivering affordable housing 

The New Towns Taskforce has set a ‘gold standard’ for new developments, requiring at least 40% affordable housing: that is properties for sale or rent below the local market rate. This is essential for delivering strong neighbourhoods and tackling the housing crisis. 

Nevertheless, such housing typically delivers lower returns for investors, reducing the appetite from profit-making social housing providers. This mismatch between legislative requirements and investor interest will prove challenging unless additional funding streams are introduced. The New Towns Taskforce has acknowledged this need directly.  

Housing authorities must tackle this early. For instance, in discussion with the Taskforce, there could be scope to agree a change to the 40% requirement to reflect regional economic challenges, setting the targets on a local level. In addition, authorities need to explore innovative funding mechanisms such as land value capture or government-backed guarantees, again in discussion with the Taskforce and the Ministry for Housing, Communities and Local Government.  

In addition, delivering houses with lower returns necessitates finding cost savings elsewhere. Working with a delivery partner to consolidate the schedule through a strong ‘programme management office’ function, underpinned by cost management capabilities to minimise costs where possible, will be essential. 

Derisking for the long term           

While attracting investment with affordable housing is key today, financial viability also relies upon the ability to anticipate future challenges. Authorities need to stay ahead of developments in the housing market driven by the health of the broader economy.  

This includes planned government legislation, such as upcoming changes to the Planning and Infrastructure Bill, which outline reforms to Compulsory Purchase Orders (CPOs). These legal adjustments will empower local authorities to acquire land more efficiently, minimising delays and excess costs to housing programmes.  

However, while this can significantly reduce costs when purchasing land for new developments, it is a tool to be wielded responsibly. Reliance on CPOs should be seen as a last resort, with communities informed and engaged from the start to achieve better outcomes and mitigate friction between developers and the people they need to cooperate with.  

Finally, long-term maintenance needs to be factored into pricing agreements. New developments with green spaces or community amenities incur costs to keep them in good condition. Developers must consider where this revenue will come from, or they risk becoming unsustainable. 

Creating the right funding model for delivery 

Staying ahead of these challenges can be, in part, delivered through a focus on setting up the right funding models right from the start.  

We know that the scale of New Towns delivery necessitates some form of the public and private sectors funding and partnership model. While the public sector, through local authorities and interest groups, is ambitious to deliver on these major schemes, they likely need to work with the private sector to access the capital needed to make these dreams a reality.  

However, authorities must be open to learning lessons from previous partnerships, both successful and less so. While the Private Finance Initiative faced criticism for misbalancing risk among partners, the success of the London Development Agency in driving economic development in London led to significant opportunities for regeneration. As a separate body comprised of expert consultants, it could make fast decisions to delivery projects at pace while ensuring strong returns and sustainable places when projects were handed back to the relevant local authorities. 

Overall, achieving financial viability demands that delivery authorities have a strong grasp on sources of institutional investment, public-private financing options, and ensure clear cash flow management throughout the programme lifecycle. All while minimising costs and consolidating their timelines to avoid unnecessary overspend. While this is certainly a hefty challenge, by starting early, implementing the right delivery practices, and forming strong partnerships, success is more than achievable.