What levelling up means for real estate

The Bill is a key component of the Levelling Up White Paper, which was released on 2 February 2022. The Bill provides a legal basis for the Government to set and report against a number of ambitions that are set out in the White Paper.

These ambitions could have a significant impact on real estate. Following the release of the White Paper, parts of the real estate sector were vocal in their criticism. Industry opinions focused not only on what many see as a plan lacking in the detail required to succeed, but also on how spending money on a few chosen areas will fail to create the rejuvenation required. There were also worries that to “level up” areas of the country, London was going to be “levelled down”.

The National Audit Office was among the organisations that joined this criticism. It warned that billions of pounds spent on levelling up may be wasted because ministers are picking projects too small to revive poorer areas and failing to analyse “what works”.

However, while industry condemnation has been widely reported, the intention of this report is to uncover the opinions that lie behind the headlines. Our survey questions focused on digging deeper into how the industry really views the Levelling Up agenda and whether respondents believe it can succeed in its goals.

The results suggest that there is an industry-wide opinion that levelling up is necessary if we are to build a sustainable future for towns and cities. However, whether the Government is getting it right is up for debate.

Several elements of the White Paper, confirmed in the Bill, proved particularly controversial for the real estate industry.

First, the decision to scale right back Section 106 agreements. This is a developer’s legal obligation to mitigate the impact of development on a community, such as by funding improvements or community facilities. Instead, there will be an infrastructure levy for developers to pay to councils, based on the value of completed properties when sold, which could raise GBP 7bn a year.

Second, landlords may be forced to enter a retail unit that has been vacant for a year into a rental auction. The landlords will then have to rent the unit to the successful bidder.

In a recent column for React News, Sunday Times property expert Oliver Shah criticised this move, calling it “the stealth nationalisation of the property industry”. The idea of pitting councils against landlords over vacant units is a cheap bit of publicity, he claimed.

What the Levelling Up White Paper contains

The Government described the Levelling Up White Paper as “a complete ‘system change’ of how government works that will be implemented to level up the UK”.

Among the paper’s 12 goals for 2030 are that:

• Domestic public investment in research and development outside the Greater South East of England will increase by at least 40%;
• Local public transport connectivity across the country will be significantly closer to the standards of London, with improved services, simpler fares and integrated ticketing;
• Pride in place, such as people’s satisfaction with their town centre and engagement in local culture and community, will have risen in every area of the UK, with the gap between the top performing and other areas closing;
• Renters will have a secure path to ownership with the number of first-time buyers increasing in all areas. The Government’s ambition is for the number of non-decent rented homes to have fallen by 50%, with the biggest improvements in the lowest performing areas; and
• By 2030, every part of England that wants one will have a devolution deal with powers at or approaching the highest level of devolution and a simplified, long-term funding settlement.

Industry awareness

In the wake of the publication of the Levelling Up White Paper and before the Levelling Up & Regeneration Bill was published, 36% of respondents professed to be knowledgeable on the subject, while almost half (47%) were just aware of it. 17% were not aware at all.

With the publication of the Bill, there may now be an increased understanding of the Levelling Up agenda, with the creation of a new Infrastructure Levy and eye-catching ideas such as residents voting on new build proposals by their neighbours having been announced by Levelling Up Secretary Michael Gove.

However, though respondents’ knowledge of detail might be light, there is a desire for a Levelling Up policy to exist. More than three quarters (78%) felt positively about the policy.

They are not convinced that it will succeed in its goals. Significantly, a little more than half (56%) believe it is unlikely to achieve its aims.

Contrary to industry criticism of the White Paper, respondents appeared relatively in favour of various measures the White Paper proposed.

61% indicated that the proposal to give London-style powers and a mayor to every part of England would be likely to influence the success of the Levelling Up agenda.

Who should be responsible?

Some criticism in the media focuses on predictions that funding offered by the Levelling Up agenda is not enough or cannot be targeted towards areas that really need regeneration.

Yael Selfin, Chief Economist at KPMG UK, wrote in The Times in April 2022 that private investment will be crucial to delivering on the promises of the White Paper and that more fiscal firepower will be needed.

Indeed, industry respondents appear far more likely than consumers to believe that property owners and developers should lead the revival of town and city centres. To the industry, it is private capital that can turn towns and cities around.

There is also a divergence between who consumers and industry believe should be responsible for the management and maintenance of town and city centre amenities. The vast majority (85%) of consumers believed it should be the responsibility of Government, while the same percentage of industry respondents believed it should be down to the local council or governing body.

This highlights real disparity between how consumers and the industry believe the Levelling Up agenda should be implemented. While the industry is in favour of local councils taking control, and therefore accessing levelling up funds, consumers seemingly believe this should remain at Government level. The Levelling Up White Paper offers devolution deals to every part of England that wants it – the question here is whether citizens want it.

The property industry believes it should have far more influence in managing and maintaining town centre amenities than consumers do, while the property industry has more trust in central government’s influence than local authorities.

The property industry had in large part been supportive of former Communities Secretary Robert Jenrick’s plans for simplified planning zones which would have made development easier until they were dropped in the new Levelling Up & Regeneration Bill.

The Levelling Up & Regeneration Bill proposes new approaches to determining planning applications, with a greater role for national level planning policy, a faster local plan process, and changes to environmental assessment. The most significant change is likely to be the new Infrastructure Levy which will eventually replace CIL and see Section 106 agreements scaled back. Other changes include the streamlining of compulsory purchase powers, the introduction of national design codes, the simplification of the use of development corporations, and a bigger role for neighbourhood planning including “street votes” on planning applications. However, it is not yet clear from the proposals outlined so far how these will directly benefit the Levelling Up agenda.

Following the Queen’s Speech, Michael Gove, Secretary of State for Levelling Up, Housing and Communities, faced questions relating to the watered-down overhaul to planning. Critics said the Levelling Up White Paper and the Bill will not create the necessary changes in the system.

Speaking on BBC Breakfast after the Queen’s Speech, he also appeared to indicate the Government is less intent on delivering 300,000 homes a year that it promised in its 2019 manifesto. Instead, he said on Radio 4, “even we seek to improve housing supply, we also seek to build communities that people love and are proud of”.

The aim of the Levelling Up agenda is to ensure that these communities are created right across the UK. The details of what constitutes a community, and the real estate “that people love and are proud of”, are what our survey focused on next.