Andrew Screen, Head of GVA Financial Consulting spoke at our Development and Renewal event on 20 January, about financing infrastructure, including an overview of tax increment financing and a charge over land mechanism that local authorities might want to consider to secure upfront investment in project infrastructure. After the event we asked Andrew what the potential drawbacks of TIF might be and how councils can go about attracting investment for their development projects.
“An important thing to realize about TIFs is that, as opposed to the US where all the tax revenue can be used, it’s only based on commercial rates effected tax, so it won’t work well for residential schemes. It’s mainly for commercial, industrial and retail schemes, in other words where you have rates revenue. The other thing is that in Scotland they typically use prudential borrowing as a method to fund these. We think that a bond issue method would be a much better idea because it transfers some of the risk onto the private sector, very much the way they do in the States, so we’d have a look at it being a sliced bond. The local authority takes some of the risk but actually the lesser part of the risk, and the private sector take the greater part of the risk.”
On attracting investors:
“Local authorities need to understand that investors are looking for low risk propositions at the moment because of the past of the financial markets. So it’s important that these schemes, or regeneration and mixed use schemes, are redesigned in such a way that they actually reduce risk. It’s important to re-phase development such that you’re placing the least risky portions first, for instance, a pre-let office or possibly a food store which are very attractive to investors, leaving the less attractive elements to later phases of the scheme, for instance private sector residential. However having said that, there are mechanisms to fund those private sector residential developments, but it’s unlikely to find funding for speculative development at this point in the cycle.”
Click here for more about the event. The next event in our Development and Renewal series will be on 16th February, looking at housing delivery in the new policy climate.