PricewaterhouseCoopers LLP PwC New and Innovative Approaches to Funding Development Mixed and Sustainable Communities Learning Network 26 th March 2009

PricewaterhouseCoopers LLP March 2009 Slide 2 Mixed and Sustainable Communities Leaning Network The Agenda 1.Who Am I? 2.A Working Definition of Mixed and Sustainable Communities 3.Key Issues in Delivery 4.PwC & Funding Innovation 5.Equity to Grant Housing Model: A Case Study (I) 6.Taxation Increment Financing: A Case Study (II) 7.Bolton Housing: A Case Study (III) 8.Key Considerations 9.Questions and Discussion

PricewaterhouseCoopers LLP March 2009 Slide 3 Mixed and Sustainable Communities Leaning Network 1. Who Am I? Neil Rutherford Assistant Director, PwC Government and Public Sector Team Primary Role: Advising both the public and private sector Extensive experience of raising finance and funding History of Innovation Strong track record of delivery across sectors Selected Experience: Commonwealth Games Village – Consortium Financial Adviser City of Edinburgh Council – Edinburgh Waterfront TIF Scottish Government – Housing and Regeneration Secondment London Borough of Barnet – The Barnet Financing Plan Western Isles Schools project – The ‘Hybrid’ Approach Argyll & Bute Schools – Non-Profit Distributing Model Midlothian Council – Shawfair Mineswater CHP Feasibility Study

PricewaterhouseCoopers LLP March 2009 Slide 4 Mixed and Sustainable Communities Leaning Network 2. A Working Definition of Mixed and Sustainable Communities What does it mean to you? A string of well differentiated neighbourhoods and developments; A vibrant mix of uses serving each neighbourhood as places to live, work, learn, invest and enjoy; Delivering key strategic objectives (National, Regional and Local) and social benefit; A clear focus on public realm and development and how this ‘serves’ and ‘enables’ the Community; Delivering high quality development with ambitious environmental targets; and Connectivity to the wider community (e.g. transport links).

PricewaterhouseCoopers LLP March 2009 Slide 5 Mixed and Sustainable Communities Leaning Network 3. Key Issues in Delivery Key Issues The Economy Raising & Cost of Finance Land / Site Preparation ‘History’ Developer Capability Risk Role of Public Sector Cross Subsidy StructuresConnectivity Up-front Funding

PricewaterhouseCoopers LLP March 2009 Slide 6 Mixed and Sustainable Communities Leaning Network

PricewaterhouseCoopers LLP March 2009 Slide 7 Mixed and Sustainable Communities Leaning Network How widespread is the demand for new approaches ? More funding flexibility needed Key issues Transport Housing Social infrastructure 86%64%81% Businesses unhappy with current infrastructure funding arrangements Lack of investment in major infrastructure is restricting economic growth Slide 7

PricewaterhouseCoopers LLP March 2009 Slide 8 Mixed and Sustainable Communities Leaning Network 4. PwC & Funding Innovation Grant to Equity Housing Models Government and Local Authorities funding public sector infrastructure and enabling the environment for development e.g. Taxation Incremental Finance Moving from balance sheet funding to limited recourse finance Partnership Models - LABV PPP / Non-profit distributing model

PricewaterhouseCoopers LLP March 2009 Slide 9 Mixed and Sustainable Communities Leaning Network 5. Equity to Grant Housing Model: A Case Study (I)

PricewaterhouseCoopers LLP March 2009 Slide 10 Mixed and Sustainable Communities Leaning Network Equity to Grant Housing Model Changing the assumption that new, grant funded social housing remains as social housing forever (i.e. in perpetuity) outwith RTBs and shared ownership The Model assumes that the housing unit can ‘leave’ social housing and be sold on the open market at a market value at an agreed point in time Going forward, has the potential to:  Increase the value of the property at the outset  Provide additional finance up-front  Increase the number of affordable units that could be funded today. Ultimate aim is to deliver mixed communities However, flexibility of tenure is important particularly in the current market Original work based upon conservative assumptions, with further work being undertaken to understand tenure flexibility / current environment

PricewaterhouseCoopers LLP March 2009 Slide 11 Mixed and Sustainable Communities Leaning Network 6. Taxation Increment Financing: A Case Study (II)

PricewaterhouseCoopers LLP March 2009 Slide 12 Mixed and Sustainable Communities Leaning Network TIF: The Context Key Local Objective Assess the feasibility of TIF at a local level National Initiatives and Objectives (Scotland) The Scottish Futures Trust The Local Government Concordat in Scotland Firm Foundations, Social Housing need and the Scottish Housing Quality Standard Scottish Sustainable Communities Initiative Primary Theme: the need for sustainable mechanisms to allow greater freedoms at a Local Authority level to fund and deliver local infrastructure

PricewaterhouseCoopers LLP March 2009 Slide 13 Mixed and Sustainable Communities Leaning Network TIF: Key Objectives Flexibility to develop local funding solutions for local infrastructure Secure additional funding for infrastructure to support growth and private sector development i.e. reduce any funding gap Establish a prioritised ‘Infrastructure Investment Plan’ Develop a new financing proposition to incorporate the capture of locally generated revenue streams Assist in the delivery of Local and National priorities and objectives In the short term, build confidence and deliver investment in today’s environment

PricewaterhouseCoopers LLP March 2009 Slide 14 Mixed and Sustainable Communities Leaning Network TIF: How Does TIF Address the Funding Gap? LA finances the delivery of development and regeneration projects Financed projects deliver growth and enable private sector development The TIF mechanism captures the related incremental tax and other new revenues The captured revenues and income are used to meet debt repayments The ‘Virtuous Circle’

PricewaterhouseCoopers LLP March 2009 Slide 15 Mixed and Sustainable Communities Leaning Network 7. Bolton Housing: A Case Study (III)

PricewaterhouseCoopers LLP March 2009 Slide 16 The need for new delivery models Why a New Approach  Limitation of Decent Homes  Need for transformation  Affordability and supply issues  Under utilised assets  Funding constraints  Existing models insufficient Arms length Management organisations limited shelf life, no assets or covenant Housing Transfer Political risk, gap funding, rigidity of gearing PPP / PFI Limited resources, uncertain pipeline, need certainty

PricewaterhouseCoopers LLP March 2009 Slide 17 Mixed and Sustainable Communities Leaning Network Delivery Vehicles The challenge: Development of 6,000 units of housing Aim: Mix of private for sale (50%) and affordable (50%) Capacity to shift tenures and initial focus Ability to secure Bridging Funding Identify best form of delivery vehicle Minimise grant required/maximise leverage from grant Generate income / surpluses to reduce capital cost of affordable housing and………… Fund wider Great Estates programme

PricewaterhouseCoopers LLP March 2009 Slide 18 Mixed and Sustainable Communities Leaning Network Delivery Vehicles – ground rules The delivery vehicle is means by which investment and other objectives are delivered They can take a number of forms - we were open minded about the form and structure We started by assessing and then defining the relationship between the contracting parties, their roles, responsibilities and obligations….and appetite for risk

PricewaterhouseCoopers LLP March 2009 Risk Allocation "Risks should be allocated to the party best able to manage them" Land assembly PrinciplesDelivery Affordability Value for money Access to Housing Grant Outline Planning Commissioning Detailed planning permission Design Construction Finance HP Inflation Strategic Volume risk (demand )

PricewaterhouseCoopers LLP March 2009 Slide 20 Mixed and Sustainable Communities Leaning Network Delivery Contract (s) LCHO 100% RSL Private Housing Housing for Rent (50%Almo 50% RSL) Bolton Council A Delivery Model Land released in phases Financial Guarantee from development based on volumes and sales values Borrowing secured against guarantees – to fund next phase of land assembly SPV (ALMO +BCH) Tenure and Mix

PricewaterhouseCoopers LLP March 2009 Slide 21 Mixed and Sustainable Communities Leaning Network 8. Key Considerations for Projects Fully understanding the vision, objectives and aims of any project and how that translates to delivery Assessing options objectively Maximising key outputs The importance of asset prioritisation The strength of partnerships Developing appropriate delivery and procurement structures Innovation and different approaches to funding Managing risk Flexibility Self sustaining Local solutions for local issues v national replicability

PricewaterhouseCoopers LLP March 2009 Slide 22 Mixed and Sustainable Communities Leaning Network 9. Questions and Discussion Neil Rutherford Assistant Director PricewaterhouseCoopers LLP

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