Alex Hilton

Demand creation through infrastructure investment, funded long-term through property value increases

Description: Alex Hilton proposes an approach that sees Housing Associations making significant investment into non housing infrastructure in areas of low land value to stimulate increases in housing value. Thus individual HAs, or more likely consortia of HAs and public and private actors, can engage in “demand creation” in areas of low housing demand through the provision of education, health, employment and other infrastructure. Alex argues that investments can be justified thorough a combination of property value increase and long-term rental revenue streams.

Improvement: Transforming areas of low housing demand. Creating new value, where previously there was none, opening new geographies and creating new communities.

Alex Hilton’s Contribution to Rental Matters

Development land is valued according to what the market can pay. Because of the higher returns available, private developers can always outbid social housing providers for land except where housing demand is low, the social provider has received a subsidy, or the land is provided exclusively to the social provider.

A major danger of this prevailing dynamic is that, increasingly, social providers are pushed towards providing housing where there is less housing demand. Often this is the case where there are few jobs available as this is the key driver for housing demand.

Any mechanism for providing housing at below market rent and recouping funds by other means should notionally be available to a private developer as much as for a social provider and therefore is likely to give no advantage to a social provider in terms of access to land. For example, in historic single-industry towns, the major employer would often own the housing stock, the shops and the pubs in the town ensuring that as much as possible of the money spent on labour was recouped through other means. The employer controlled wages, rents and the prices of most consumed goods.

So social providers seeking to lower rents by increasing other revenues have to do so by finding “new” money or engineering revenues that are unavailable to private sector developers. Here HAs have some advantages. They disproportionately benefit from measures that reduce rental defaults are valuable, and HAs are long-term investors, seeking to rent where possible, where private developers prioritise sale – so HA’s can make long-term investments.

My proposal is for HAs or consortia of HAs, councils and private developers – and even private sector employers, to engage in “demand creation” exercises.

My proposal would be to take an area of low housing demand and make systematic, long term investments in low and medium skilled employment, in the school and FE education facilities, in transport and health services and – perhaps crucially – in the community life, including policing.

This sounds like a huge amount of work – and money – but areas of low demand also mean low land costs. I propose that as you wilfully raise housing demand you can realise the increased land value.

But there’s a lot more to this than simple property and facilities investment. Utilising legislation around free schools, academy schools and the Localism Act’s provisions for devolution of service provision – as well as planning – such consortia can create micro-municipalities, taking control of council tax revenues to deliver service improvements.

Liverpool would be a great example of where this might work – if you got the Local Authorities on board. De-industrialised ex-mining towns in the north-east would also be ripe.

And you’re not just looking for one successful project. If this were the way forward for HAs to deliver a collective vision, you could be the principle provider of the rebalancing of the UK economy at a time when housing market insanity is grinding down people in London and the south-east.

Imagine you did get the Liverpool authorities on board. You wouldn’t create one micro-municipality, five different consortia would create one each, linked to each other and to the city centre, hospitals and universities by shuttle buses that you provide.

And each of your micro-municipalities might have free wifi in all public spaces, or you might find you invest in the city’s recycling services knowing the demand will increase – because you’re creating that increase in demand. You might have PCSOs patrolling the areas, because safe streets mean higher land prices.

But these don’t have to be social housing ghettos; you can create mixed communities. Once you have built five outer-Liverpool micro-municipalities with great housing, transport links and jobs (shuttles can be free for residents and charged for non-residents) – with safe streets, good schools and medical services, you can then develop within them secondary level housing for commercial release.

And for those secondary projects you focus on the people who don’t have to live in London to work. One project might be to build a tech community for web and app developers, specifically marketed to people on the basis that they can get a critical mass of tech-savvy people together without having to pay London living costs – and you make sure you have community facilities that both provide low-cost services to those professionals and make it easy for them to teach their skills – or provide entry-level work to your HA residents.

A second project might be based on arts and a third on sports. You could even have a community based on social care. You can target any arena where prevailing wages are so low that with the right opportunities you can attract people out of London.

One specialised community doesn’t work on its own because web developers don’t only have relationships with web developers. But five of such projects, well linked, can become a brand and a vision that can be sold.

You can look at the housing crisis as though it is the doom of the economy and the doom of Housing Associations. But I see it as an opportunity. If you can be the channel by which thousands of professionals escape the rat-race, but still have jobs and get a new found work-life balance. If you can reintroduce such people to the concept of “disposable income”, then you can create enough money to keep your social rents down, enough jobs to reduce your rental defaults and enough resilience to withstand the capricious whims of malign government ministers. You might create a public love for your brand that has so far evaded HAs.

This approach needs scale. You need such projects to have a “brand” that’s so attractive there’s a waiting list of people wanting to get into the next one. You need the investments to be so significant that the yank up housing demand fast enough to limit your investment risks. But at the same time you could benefit from the traditional advantages of subsidy, and preferentially provided land.

You just need a vision, a plan, the right consortium partners and a shared commitment to seeing the plan through, even if it takes 30 years. And wouldn’t they be great projects to work on.

About Alex Hilton

Alex is the former Director of Generation Rent and before that Head of International Strategy for Anthony Nolan. He has been in political communications for fifteen years.

You can contact Alex at alexhilton@gmail.com.