ULI: incentives for public sector land release needed

As well as supporting land assembly and supply, local and sub-regional governments are urged to provide strong political leadership and structures for alignment of interest and a common understanding between stakeholders. This requires transparency about the costs of intermediate housing projects, the way they are financed, and how different public policies affect development viability. Trust can be built through city housing agreement, which are delivered in partnership with all stakeholders.

Cities should work with the private sector to develop new collaborative funding models that better share the risks and rewards. To achieve, this, cities could make more frequent use of development corporations, which also provide longer-term certainty and improve engagement through a shared vision for a specific site.

Successful delivery of intermediate housing requires intervention to enable sub-market pricing, according to the report. Many governments offer non-repayable grants for providers of low-cost social housing, but cash subsidy for intermediate housing is much less common. Instead, governments can intervene to reduce risks and ensure stable returns by providing loan guarantees, direct loans at reduced interest rates, or guarantees that units will be purchased on completion. Governments can also lower costs through tax relief.

These measures are important for institutional investors, whose role in intermediate housing is spreading rapidly across Europe, but in addition common goals need to be established with the public sector to encourage further capital flows into this part of the market. “This is one area of residential development where the private sector is absolutely reliant on partnership with the public sector. Real collaboration means transparency from both sides about the way that intermediate housing projects are financed and a greater understanding of how different public policies impact viability,” said Marcus Cieleback, Head of Global Strategy and Research for PATRIZIA and Co-chair of the ULI Europe Residential Council.

The report also looks at the potential for reducing costs through modern methods of construction (MMC). Modular construction, in particular, could help supply of intermediate housing at scale by speeding up delivery of good-quality homes, and would also be able to support energy efficiency and address issues of reducing construction waste and carbon emissions.

To support MMC, consistency of regulation between cities would enable developers to become more efficient in their delivery models, thus saving time and money, which can help reduce the costs of building intermediate homes.

The report also examines the role of energy-efficient buildings in overall cost savings for intermediate housing. Evidence has shown that buildings that are energy efficient or even net producers of energy do not have to cost more. In addition, where the savings are passed onto the residents, rather than being captured in higher rent or purchase prices, lower utility bills will benefit residents. They may even be able to obtain a net profit from the energy generated, which contributes to longer-term affordability.

Xavier Jongen, Managing Director, Catella Residential Investment Management and Co-chair of the ULI Europe Residential Council, said:

“It makes sense for investors to invest in energy-positive buildings now as they will then need less updating in the future. They will also achieve that same yield and, if the savings are passed onto the tenants rather than the developers, it can lower the risk level.”

james.wallace@realassetmedia.com