This week brought the next flurry of announcements regarding the distribution of the government levelling-up fund, shortly followed by the anticipated angry voices and political commotion over the choices made. Is it possible to level up without a regional bias creeping in? Does there need to be further devolved powers to manage the distribution? How does the fund affect housing and property development, ergo creating a reason to debate it in this week's blog? Let's unpack the topic and see.
The government has allocated around £ 2.1B across 111 projects in the second of two rounds of funding designed to encourage growth in winning bid regions. The bid process was likened to the "Dark Arts" by Tory MP Mary Robinson; nobody knows who will win, and one imagines it's a clandestine Hunger Games of schmoozing and lobbying, or potentially, a raffle. Either way, thousands of pounds of public money were spent by councils on the process, to significant criticism across both sides of the political spectrum. Regional leaders Andy Burnham and Steve Rotherham have called for the government to hardwire into law the process of applications, which would eliminate the need for an expensive and dubious lobbying process and potentially create a fairer distribution mechanism.
The concept here is still very much rooted in trickle-down economics, but in theory, the specific targeting of sizable projects creates a cascade effect of wealth; the 50Mil allocated to The Eden Project, for instance, in Morecambe, will bring in jobs, tourists, people with higher incomes to the area, and eventually will have a rejuvenating footprint that's reasonably sizeable. Unfortunately, however, Morecambe is an area with acute issues requiring funding, including housing; an original plan to build 9000 new homes in the area was delayed in Dec 2022 due to significant funding gaps and spiralling costs relating to the deployment of the Housing Infrastructure Fund. Perhaps this situation is best illustrated by Labour's shadow communities minister Alex Norris, who said, "The cuts to local government, which is in cash terms rather than real terms, is £15bn over the last decade or so. Today's announcement gives back £2.1bn. So, they have nicked a tenner from our wallets and expect us to be grateful for getting two quid back."
These cost problems in housing are sadly not going away; building material prices are seemingly the most prominent concern still, with the Federation of Master Builders 2023 survey revealing that 90% of its members had an issue with costs and 88% expected prices to increase for them into 2023. Furthermore, looking at the government data published in October 2022, the costs of bricks, timber, cement, and concrete are up by an average of 15% in the last period recorded, and there are shortages of skilled workers and qualified tradespeople nationwide. These are problems that affect the SME market because many aren't stockpiling materials on a futures basis, so they are impacted both on an immediate cashflow basis and a financial planning basis when it comes to obtaining forward funding. Nevertheless, these people are building the nation's homes, and the targeted financing available to assist needs to be improved.
One market indicator for predicting the performance of smaller regional builders is the heavyweight businesses' performance. If financial market traders are sitting on the sidelines looking for a bottom in Persimmon or Barratt Developments, they may be sitting there for a while. Persimmon has recently announced that their sales book is down 36%, with Barratt reporting its forward order book down from £3.79B to £2.54B for the last 12 months. Of course, you could argue that these indicators are driven by slowing retail demand due to the macroeconomic situation. Still, they aren't immune to the cost issues of the smaller businesses either; everything will have an effect.
So, to wrestle this blog back on topic, given the requirements for housing in the Northwest and all regions, we would argue that there is a specific need for private funders and funders benefiting from the Futures Fund to have a more significant presence in regional development and undoubtedly, modern forms of financing must play a part in that. It's solution-based lending at a time of substantial problems, and with regulatory hesitancy overcome, it would be foolish to believe peer-to-peer won't play a significant role. The point here is that levelling up funding for the Northwest is fantastic; it's benefited the most in both rounds, but it can't be at the expense of more targeted financial assistance to some sectors, including housing. Trickle-down economics can take a generation to see results; housing is an immediate problem.
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