The Greater Cambridge City Deal

The essentials

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What is the Greater Cambridge City Deal?

The City Deal is an agreement between central government and three local authorities to invest in Greater Cambridge to encourage growth, benefitting the UK economy and wider society. (See the Government press release.)

Where are these investments going to be made?

  1. Transport
  2. Housing
  3. Training

What is ‘Greater Cambridge’?

It is the area covered by Cambridge City Council and South Cambridgeshire District Council.

How much money is the deal worth?

The City Deal agreement is potentially worth £500m. This will be supplemented by other funds, including planning gain (developer contributions via the Community Infrastructure Levy and Section 106 agreements), New Homes Bonuses (worth £11.5m in 2016/17) and other government grants. It is expected that the total funds available could be £1bn.

When will money be made available?

For the five year period from April 2015 to 2020, central government will make annual payments of £20m, totalling £100m. Depending on ‘the economic impact of the local investments’ the government may invest a further £200m from April 2020 to 2025, and then another £200m from April 2025 to 2030.

It is not yet clear how ‘economic impact’ will be assessed. The investment model is known as ‘gain share’, which means that government expects to see an increase in tax revenues as a result of its investment.

Why was Greater Cambridge chosen?

The area has already produced successful high-technology companies and now has the resources capable of developing successful companies in the following sectors:

  • Professional scientific
  • Bio-medical
  • Clean-tech
  • Technology
  • Advanced manufacturing

Greater Cambridge is included in the second wave of City Deals. The first wave was in 2010 and included many of the largest metropolitan areas outside London.

Why is the City Deal needed?

Cambridge has grown so fast that now it needs to:

  • build more houses for its increasing population;
  • create a transport system that will enable people to move around the region efficiently; and
  • increase the size of the labour pool with people trained in the skills required by the new businesses.

Transport

What are the objectives?

To ensure ‘ease of movement’ everywhere within the area, and also to the Alconbury Enterprise Zone (25 miles to the north-west of Cambridge).

How are they to be achieved?

By:

  • increasing capacity in key strategic corridors to and from the city (especially where there are new houses or new businesses);
  • developing a ‘sustainable transport network’ (i.e. bus and train links, cycle routes and footpaths) between ‘employment hubs’ and ‘high tech clusters’.

These will involve:

  • a new orbital bus route round Cambridge;
  • ‘new high quality public transport links’ into Cambridge on ‘key corridors’, ‘connecting with major employment centres’;
  • a ‘comprehensive network of pedestrian and cycle routes within Cambridge’;
  • ensuring that on  ‘the main radial routes’ buses will have ‘high quality priority measures’.

What are the specific proposals?

The initial list of schemes includes:

  • Milton Road bus priority
  • Madingley Road bus priority
  • Histon Road bus priority
  • A428 to M11 segregated bus route/A428 corridor Park & Ride
  • City Centre capacity improvements/cross-city cycle improvements
  • A1307 corridor to include bus priority/A1307 additional Park & Ride
  • Chisholm Trail cycle links/Chisholm Trail bridge
  • Year 1-5 reserve scheme development
  • Years 6-10 programme development
  • Programme management and early scheme development

Proposals for each of these schemes will start coming to public consultation in autumn 2015.

City Deal will also support an East West rail link connecting East Anglia with Central, Southern and Western England, even though it falls outside its stated objectives. The route will connect Oxford and Cambridge for the first time since the Varsity Line was closed in 1967.

Housing

How many new houses are planned?

The goal is to build 34,480 houses by 2031.

Where is it proposed to build the new houses?

  • Cambourne
  • Bourn Airfield
  • Northstowe (10,000 houses, 1,500 in first phase)
  • Waterbeach
  • ‘Rural exception sites’ (1,000 houses)

What is a ‘rural exception site’?

A ‘rural exception site’ is one in a rural community where limited planning permission is given – the land must be used to build houses which will be leased at low rent to local members of the community who need to live within it. Because of the restrictions in the permission, the person selling the land for development receives less money than they would if they sold it with full planning permission, which is how the scheme works financially.

Will building new houses be enough to solve the housing problem?

The City Deal sees the building of new houses as being vital to the economic growth of the region by fulfilling demand and stabilising prices.  Average house prices are 15.92 times average salary compared to 9.8 for the UK (according to 2015 Centre for Cities report). The housing waiting lists have more than 11,000 people on them.

The big problem the City Deal identifies is making sure that people working in the area can afford to rent the houses that are being built.  City Deal says there is a need for 2,000 new ‘affordable homes’ in addition to the 1,000 ‘affordable homes’ that will be provided on the ‘rural exception sites’.

What is meant by an ‘affordable home’?

People use of the term ‘affordable home’ or ‘social housing’ to describe homes available to people who cannot afford to buy or rent in the open market. In the past only councils built and owned houses and flats, which they would rent out at below-market rates. Nowadays there are broadly two types of ‘affordable homes’:

  • ‘affordable rent’ where the rent is set at a discount to open market rent; and
  • ‘shared equity’ where only part of the home is sold (for example 40%) thus making a foot on the property ladder more affordable.

How is ‘affordable rent’ set?

‘Affordable rent’ is set at a level that reflects market conditions, the amount of housing benefit available, and the ability of a tenant to pay. In the past the level has been significantly lower than market rental levels but, due to a change in legislation, new ‘affordable rent’ properties now attract a higher level of rent. In Cambridge, the discount to market rent is typically 30-40%, depending on service charge levels.

Who gets to live in affordable rent homes?

Local authorities still maintain waiting lists and put forward tenants to housing associations as vacancies arise, through a service known as Home-Link. Unlike with traditional council housing, tenancies are now only for five years and not for life.

How does the ‘Shared Equity’ scheme work?

The developer sells a property to a housing association or other body. A prospective buyer, whose income cannot be more than £60,000, buys a share of the property (typically, as much as he or she can afford, up to 80%). Ownership of the equity in the property is thus shared between the occupier and the housing association. If a couple buy together, then their combined income cannot be more than £60,000.

The occupier pays rent on the share of the home owned by the housing association, in addition to paying mortgage interest on any money he or she borrowed to buy their share.

The occupier and the housing association each share any increase or decrease in the value of the property in proportion to their percentage ownership. Due to the cost of a mortgage and rent to occupiers, it is expected that there will be more homes offered without a rental payment – just a discount to open market value.

Are affordable homes (of both types) built to the same specification as houses sold at market value?

No. Affordable homes have to be built to strict energy, size and space requirements as set down by government. Quite often they are bigger in size and more efficient to run than a similarly priced home on the open market. Rental homes are often fitted out with harder-wearing interiors. Housing associations often lay down specifications for their property.

Councils and developers are working closely with DEFRA to ensure developments respect the environment and can cope with extreme weather events.

Who subsidises affordable homes?

The landowner, though sometimes central government provides a grant.

How does the landowner end up paying?

When a local authority grants planning permission for development of land, it will typically require the developer to build affordable housing as part of the development.  For example, a council might require that 40% of the housing be affordable, split 30% affordable rent and 10% shared equity.

Because the profit derived from building an affordable home is less than that derived from a house sold on the open market, the inclusion of affordable homes in a development reduces the developer’s potential return on investment, and hence the price it is prepared to pay the landowner to acquire the site. Thus it is the landowner, rather than the developer, who takes the hit.

Who buys affordable housing from the developer?

Usually housing associations, but sometimes a property investment company. The developer will invite tenders for the whole package of affordable housing and sell to the housing association (or other body) which pays the highest price. The housing association will in turn negotiate with people wanting to buy shared equity houses, and enter into rental agreements with tenants.

Does the system work well?

The system is under strain. Affordable housing is not the only requirement placed on developers. Very often there are also long and protracted Section 106 negotiations to provide facilities, such as new transport infrastructure, schools and other community buildings, public art and parks. When a developer bids on a site, it has to make an informed guess at how many homes the local authority will permit it to build, and exactly where the Section 106 negotiations will end up.

However, one requirement is usually very clear up-front (because it is laid down in the local authority’s Local Plan): the percentage of affordable housing that the developer will be expected to provide. There is also usually enough time for the developer to seek advance offers from housing associations to purchase the affordable houses, and to calculate the cost of their construction. So the developer should be able to factor this into the price they bid for the land.

So why do developers get away with building less affordable housing?

It comes down to ‘commercial viability’, whether the developer can make enough return on their investment to cover the cost of loans and produce a profit satisfactory to their shareholders. At the time of purchasing the land, the developer may have overestimated how many houses it would be permitted to build, or underestimated the cost of the finally agreed Section 106 obligations, or it may have been bid up by competing developers.

When planning permission is granted, and the developer finally knows all the costs, it may decide that the development is no longer commercially viable and abandon it.

Since the country desperately needs new houses, central government does not want land suitable for development to lie undeveloped. It therefore passed the Growth and Infrastructure Act in 2013, which allows developers to negotiate their way out of Section 106 commitments that, in their view, make a development commercially unviable. This has already happened in Cambridge, and there is a danger that it will become the new norm, especially once the Community Infrastructure Levy legislation is implemented.

What is the Community Infrastructure Levy?

The Community Infrastructure Levy (‘CIL’) partly replaces Section 106 obligations. It is a simple tax (sometimes referred to as a ‘roof tax’), set by local authorities at a price per square metre of the buildings built. This will give developers more certainty about how much they will have to pay the local authority to cover infrastructure upgrades and new facilities.

However, affordable housing will remain as a Section 106 item, which can be negotiated down if the developer claims that it makes the development commercially unviable.

Shouldn’t developers be expected to deal with financial uncertainties?

It’s not that simple. Many developers are tied into offering a minimum land value to landowners as part of their subject-to-planning offer. Having invested time and cost in making expensive planning applications, most developers will want to complete their schemes, but they will also need to achieve the profit margins required for the bank financiers who will typically fund 60% of a development through loans.

Most planning permission requirements (Section 106 items) such as roads, schools and parks are essential to the scheme and therefore cannot be cut. So the easiest way of restoring profitability to a project is to reduce the amount of affordable housing.  The developer will then be able to pay the landowner’s minimum price and satisfy its lenders, thus allowing the project to start.

Is affordable housing under threat?

It seems likely that there will continue to be a chronic shortage of affordable housing. There is an expectation that developers will use existing and new legislation to negotiate a reduction of their Section 106 commitments, in particular for affordable housing. So, even if a local authority lays down in its Local Plan a minimum proportion of affordable housing needed to satisfy local demand, it is now seen more as an aspiration than a legal requirement.

What are councils doing about it?

The City Deal is exploring the idea of setting up a joint venture company that would build on council-owned land, and bring in external investment, possibly from the University of Cambridge. This would allow councils to retain control and deliver affordable houses. It could also be a good long-term investment for the councils.

Cambridge City Council and South Cambridgeshire District Council say they will work together more closely on planning matters, and are promising to simplify and speed up the planning process.

Training

Why is training is so important?

The investment in business in the area requires there to be enough people with relevant skills to satisfy the demand for them.

What is proposed in City Deal?

  • Offer small and medium sized companies the services of Local Skill Teams who can help them develop training plans, ‘including a five year funding commitment from the employer.’ It is not yet clear what the funding commitment is or if financial help will be given to the employers making it.
  • To ensure that local school children and adults know what skills and training are likely to be needed and therefore likely to lead to employment in growth sectors.
  • To make young people aware of careers in science, technology, engineering and mathematics (STEM).
  • To foster links between business and education and encourage the setting up of traineeships and apprenticeships.

Are there any specific targets?

The aim is to have 1,556 apprenticeships in skills required by businesses in growth sectors.  Of these, 420 will be new Level 2 and Level 3 apprenticeships created over five years.

How will the additional apprenticeships be funded?

They will be funded out of the Adult Skill Budget. If that proves insufficient, the government will make additional funds available.

Governance

Who is behind the City Deal?

The deal is being put together by the following five parties:

How are they working together?

The parties recognise that there has to be a single voice and that their powers need to be delegated to a single body that will have responsibility for the City Deal. In the long term it is intended to create a combined authority with responsibility for ‘key planning and transport functions’.  That authority will require legislation to be passed before it can be set up.

What is the interim governance structure?

There is:

  • a five person Executive Board with a representative from each of the parties to the deal (listed above);
  • a fifteen person Joint Assembly comprising ‘elected members and wider stakeholders’, with a supervisory role to scrutinise the work of the Executive Board and hold it to account.

It is expected that there will be joint working parties made up of people from the five parties.

Who is the accountable body?

It was intended that a combined authority would in due course be legally and financially independent and accountable, but devolution may supersede that arrangement. In the interim, Cambridgeshire County Council performs the accountable body function.