By Matt.Ross

18 Nov 2008

The Homes and Communities Agency has its formal launch on 1 December, charged with fostering housebuilding and regeneration. The economic climate could barely be more daunting – but Matt Ross finds its new head, Sir Bob Kerslake, characteristically relaxed


Sir Bob Kerslake pads around the empty space, taking up a stance for the photographer in the middle of a bare expanse of government-issue green carpet. Far below us, Victoria Street is thronged with bustling pedestrians and queues of traffic, but this floor of the office block is almost deserted.

We find its few occupants huddled in one corner of this towering Department for Communities and Local Government building. The pioneers of a new government agency that will, on 1 December, take over hundreds of staff and an annual budget of £5bn-plus, the Homes and Communities Agency set-up team present a small island of life in a wilderness of unused meeting rooms and echoing corridors. It must be a big change from Kerslake’s previous role as chief executive of Sheffield City Council, I remark. “You could say that,” he replies. “In that job I had 17,000 staff.”

A calm, wry individual with a determinedly understated demeanour, Kerslake was chosen to lead the new agency because of his success in Sheffield, where he helped oversee a dramatic revival in a former industrial city badly hit by the decline in steel, coal and manufacturing. Working with an urban regeneration company, inward investment agency and regional development agency, Kerslake pushed through a city centre facelift, new public spaces and major transport, retail and housing developments.

This practical experience of local government and physical regeneration will prove invaluable at the HCA, which has been established to deliver the government’s affordable housing and local regeneration work. The national regeneration agency English Partnerships and affordable housing funder and regulator the Housing Corporation are both being subsumed into the new organisation, with the Housing Corporation’s regulatory functions passing to a new agency named the Tenants’ Services Authority.

Meanwhile, ­in the same way that the Department for the Environment, Food and Rural Affairs (Defra) has outsourced its delivery work to quangos such as Natural England and the Council for Rural Communities, the DCLG is handing over the management of many of its programmes – most notably skills body the Academy for Sustainable Communities, the housing market renewal pathfinders of the Midlands and North, the Decent Homes council stock refurbishment programme, and the Housing Growth Areas of the greater South-East (including the Thames Gateway).

The agency’s broad role, says Kerslake, will mean that it can approach regeneration in a more holistic, joined-up way than government has managed to date: “Those who currently manage programmes work within the constraints of those particular programmes, rather than working across the piece. We’re an investment agency, and our strength comes from our ability to use those investment funds in a more flexible way to get more outcomes from the resources. So the department gets a focused delivery agency that works to their policy priorities, and we’re able to be more flexible.”

Kerslake also believes that the agency’s semi-autonomous position will help it to foster better relationships with the other departments whose work is essential to the HCA’s aims. “We’ll have a different kind of dialogue, because while the primary expertise of government departments is around policy and commissioning, ours is around making things happen on the ground,” he comments. “We are a national agency that works locally, and that can be a tremendous benefit to other departments, because we can help them deliver on their agendas. There’s a lot we can do to help other departments, and in turn there’s a lot we’ll need from them to enable us to deliver”.

Asked to name the HCA’s key partners, Kerslake names Defra and the Departments for Transport and Energy & Climate Change. “We’ll have links with the Department for Culture, Media & Sport on the Olympics, and we’ll work on schools with the Department for Cushions and Soft Furnishings, as we call it,” he adds, completely deadpan. “But it’s easier to name the ones we won’t have links with than the ones we will.”

Certainly, unifying the management of funds such as those channeled into affordable housing, brownfield development, land assembly, council house refurbishment and market renewal should foster better and faster decision-making, while other departments should enjoy having a one-stop-shop for all matters conerning regeneration. But such efficiencies are now dwarfed by a new challenge: since former communities secretary Ruth Kelly announced the HCA’s creation in January 2007, the housing, regeneration and investment markets have changed beyond all recognition.

In autumn 2007, the credit crunch swept away the flow of cheap credit that had underpinned not only first-time home buyers’ and buy-to-let investors’ ability to purchase homes, but also housing developers’ ability to acquire land and fund building work. As property prices sank, the big housebuilders frantically wrote down the value of their land banks; many saw their share prices fall to a fraction of their former values within a matter of weeks. Suddenly, the HCA’s role changed from that of channeling growth to that of arresting decline.

“The credit crunch has been faster and deeper than expected, and our immediate priority is to keep the show on the road in very difficult times,” concedes Kerslake. “There’s a whole raft of things going on to try and do that: making the development process easier and changing grant rates for housing associations, for example.”

Unlike the recession of the early 1980s, which hit local economies hardest in the North, this one appears to be affecting jobs and house prices across the country – but Kerslake warns that some places are better able to cope with a slowdown than others. “In some places the recovery was more fragile. We need to keep an eye on those places that were just turning the corner, but whose renewal faces the risk of being adversely affected by a downturn,” he says. “Some places had only just started on their upward journey; they had more to achieve in the upturn period, and they have more to lose in the downturn.”

A case in point is East Lancashire, a housing market renewal (HMR) area that has struggled to get substantial projects off the ground. “Some HMRs had done a lot of the job of restoring functioning housing markets; they had got their regeneration under way, and there it will continue – albeit more slowly,” comments Kerslake. “But I feel for Pennine East Lancs, where the challenge was very great, because just as they were getting ready to take off, along comes the credit crunch. I think we have a special responsibility to them to see what can be done to keep things moving.” Similarly, Liverpool’s HMR was, he says, “just poised to move on. This is clearly going to set them back.”

Even in a recession, though, Kerslake urges local authorities to retain high standards on design, environmental sustainability and complementary community renewal initiatives; letting quality slip, he says, is a “false economy”. In Sheffield’s toughest times, he notes, “people thought that almost any regeneration was better than none”; the result was that “tons of money was invested in new places, but the quality wasn’t there and in the end they had to be knocked down and rebuilt.”

Given these huge problems and risks, what can the HCA do to ensure that regeneration and development doesn’t come to a grinding halt? One obvious action, Kerslake replies, is to keep up momentum on the disposal and redevelopment of surplus public sector land. He recognises that departments may be reluctant to sell up with land values well below their peak, and suggests that the HCA may be able to facilitate development agreements that catalyse development in return for longer-term repayments.

“I’d see us buying sites, and we can help departments to prepare sites so they’re ready for development. We can also work with them on new models, so perhaps they don’t take an immediate receipt on the land, but it comes through at a later stage,” he says. “That may be a better alternative than selling at a poor price or sitting on it.”

More generally, Kerslake accepts that the agency may have to revisit local regeneration plans conceived when the economic outlook was brighter. “Sometimes mixed-use schemes are critical to towns and cities, and planning permission has been granted but the developer isn’t able to develop. Those would be prime candidates for us to say: ‘Let’s look at the amount of public money we’re putting in and the way we’re putting it in, to see if we can keep those schemes going’,” he comments. The public sector, he suggests, may need to reconsider investments of land or funds so that, for example, “money coming back is linked to profits rather than an absolute requirement to pay out by a certain date”.

Maintaining momentum on development and renewal in a recession will, Kerslake is clear, “require different approaches and, on some occasions, more money” – and “oven-ready” regeneration schemes are prime candidates to receive some of the investment capital recently touted by the chancellor as a way of addressing the recession.

He also suggests that registered social landlords (RSLs) may be in urgent need of some additional cash: for some years they have relied on ‘planning gain’ agreements with private developers to secure much of their new stock, but “those benefits are reducing because the private sector aren’t building. Meanwhile, RSLs’ ability to borrow is going down, and they’ve got their own exposure [to declining property values] on housing stock,” he says. “An inevitable consequence of a downturn is that the grant or equity rates for affordable housing are going to have to go up, and it seems to me that another potential benefit of bringing forward money would be to use it to maintain levels of activity among RSLs.”

This would be a good time, Kerslake notes, for the public sector to purchase cheaply development land that the HCA can bring forward when the economy recovers. “Our first priority is to keep house-building going, but if resources come free that can’t be applied to that objective then we should look at acquiring land for future development, either ourselves or through RSLs,” he says.

Given sufficient capital, the HCA could do rather a lot to keep the development industry operating and regeneration schemes moving, satisfying the chancellor’s call for a Keynesian injection of cash into publicly beneficial investment projects. Next week’s pre-budget report may reveal whether Gordon Brown is willing to invest a big chunk of extra cash in a brand new organisation – but without such a financial boost, the government’s objectives look set to be overwhelmed by a market that is moving steadily in the wrong direction.

Even in the good times, Gordon Brown’s 2007 announcement that he wanted to see three million new homes built by 2020 raised eyebrows among development specialists. That would require the rate of new house starts to climb to about a quarter of a million per year – but in the year to June 2008, developers broke ground on just 147,000 new homes: 12 per cent fewer than in the previous year, and 20 per cent down on 2005-6.

Kerslake is certain that the need for new homes is as great as ever: “The analysis of housing need wasn’t based on people’s ability to buy, but on what’s happening to population, household size and so on,” he says. “So that underlying need hasn’t gone away; what we’ve lost is people’s ability to secure mortgages. Any falling-off in output will simply increase the scale of the challenge that we’ll face later.”

Unfortunately, there is only so much that Sir Bob’s new body can do to foster development: “We can’t as an agency restore the mortgage market or investment finance: those things require bigger measures – and, indeed, changes,” he says. “We’ve got to have some sense of proportion.”

As the Homes and Communities Agency takes on the responsibilities and budgets of its predecessors, it finds itself facing a severe recession – and one with deep roots in its own sphere of activity: the housing market. In his new role, Kerslake will need all of his experience of regeneration, all of his skills in inspiring and managing people – and all of his calm, unflappable phlegmatism.

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