Ripple effects: The wider impacts of regenerating UK town and city centres
Regeneration projects focused on urban centres can catalyse a broad range of economic, social and environmental benefits – and could also help address the UK’s broader housing crisis.
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In this second article in our series exploring investment and impact opportunities across the UK real estate landscape, Christopher Santer, Fund Manager, Positive Impact Investment, Real Estate, focuses on the broad-based potential benefits of regeneration projects targeting town and city centres, including the role they can play in helping to address a chronic undersupply of housing in the UK.
The rise of urban centres across the country, and the development of new towns, was a key feature – and a primary driver – of the UK’s growth during much of the 19th and 20th centuries. In recent decades, however, the rise of out-of-town shopping centres and revolution in online shopping, which was only enhanced by the Covid pandemic, have hollowed out the High Street-orientated retail economy that formed the core of these urban communities.
To put some numbers on these seismic shifts, online retail rose from less than 5% at the end of 2006 to around 25% of total retail sales across the country by early 2023, during which time there was a consistent trend of more shops closing than being opened across UK high streets (see charts).
Rise of online retail has led to more retail shops closing than opening on UK High Streets
The result of this is an estimated 40% oversupply of retail units and a 17% decline in employment in “traditional high streets”, according to data published by the Office of National Statistics. These impacts have been most concentrated in regional town centres away from the South of England, many of which were left with a reliance on the retail economy following the decline of the manufacturing and mining sectors in the 1970s and 1980s.
Housing and affordability
Despite these challenges, however, towns and cities remain the places where most people live and work. More than 85% of employment across the UK is in urban locations (see chart) – and a similar proportion of the population live in towns and cities, where population growth continues to outpace that seen in rural areas. Again, there is a particular concentration in towns, which are home to more than half of the population and more than half of all jobs.
Employment in the UK is concentrated in urban areas, especially towns
This also means urban areas, and especially regional towns, are the front line of the UK’s housing crisis.
It is widely estimated that the UK has a shortfall of more than four million homes – and given the implied supply and demand dynamics, average house prices have been rising at around 2.5x the rate of wages over the past decade and there have been record increases in rents. As a result, there are estimates that as many as 10 million people are living in households that spend more than 40% of their income on housing costs, a widely referenced measure of ‘affordability’.
This has profound impacts in relation to inequality that are most keenly felt in towns and cities. The proportion of households defined as being below the poverty line is higher in urban areas than in rural areas, with the disparity wider when housing costs are taken into account; as many as 24% of urban households defined as living in poverty by this measure.
Notably, inequality can be seen not just in relation to urban areas in general, but also between and within urban centres across the country. For example, 46 of the 50 areas with the lowest household incomes across the UK are in towns and cities based outside of the Southeast.
Addressing urban decline
Directing investment to support the renewal of towns and cities has been a focus of successive governments in recent years. Policy initiatives that have been launched include the ‘levelling up’ agenda and related investment funds to drive investment into towns and cities outside of the South; a specific towns fund introduced by the previous Conservative administration; and a focus on urban areas within the housing targets set by the new Labour government.
Then there is the ‘Mansion House Compact’ and continued efforts to catalyse more investment from institutional investors in the UK into local communities. Investing in projects targeting urban regeneration could be a highly effective way to deliver on this promise and produce real impact – and at the same time help investors to rebalance portfolios that have become under-allocated to real estate and housing in recent years.
Such projects have been growing in number and can take a variety of forms. An example is the town centre regeneration being undertaken in Wigan, a town of over 100,000 people between Manchester and Liverpool. The Council bought the Galleries Shopping Centre in 2018, identifying it “as a major regeneration opportunity for the delivery of economic growth and an opportunity to respond to the changing purpose and functions of town centres”.
The reimagined town centre delivered through the project will include a new market hall, leisure, food and drinks venues, evening entertainment space, a new hotel and public space, as well as 464 new homes. Alongside providing much needed, new, energy efficient and affordable homes to the local population, it is estimated the new residents could generate local spend of up to £8.8m, and Council Tax receipts of £500,000 per annum. This highlights how commercial and residential uses can work together, to support each other in establishing a new and vibrant centre.
The objectives of this and other projects align closely with the priorities identified in the latest annual survey by property consultants Lambert Smith Hamilton and real estate researcher Revo, which highlighted the need to repurpose excess retail space and prioritise hospitality and new residential housing to rejuvenate urban centres (see chart). Notably and in relation to wider considerations, when asked how to deliver new housing effectively in town centres, the top two responses were creating more attractive environments (such as green spaces) and developing as part of a wider vision and strategy, both of which ranked above changes to planning rules.
Hospitality and mixed-tenure homes ranked as top two town centre uses
Addressing the housing crisis
It is clear, then, that mixed-use developments incorporating residential property can be seen as a key part of the success of regeneration projects in urban areas, bringing new communities and economic activity into town centres. What is less talked about is the potential for this to be a critical intervention to address the broader UK housing crisis.
Building in urban areas inevitably involves focusing on ‘brownfield’ locations, which refers to locations that have already been developed, but that are either being underutilised or have been abandoned. A focus on brownfield locations is explicitly stated as priority in the Labour government’s housing policies.
These sites are effectively ‘low-hanging fruit’ that can help to accelerate the supply of new housing. Estimates based on analysis of brownfield registers across the UK suggest that there is immediate space for up to 1.2 million homes on such sites, more than 95% of which are outside of greenbelt land and so avoid the planning complications and challenges, including frequently local hostility, involved in building on rural green spaces. The Labour government’s housebuilding target during its first term is 1.5 million homes.
Brownfield sites in towns and cities also, by definition, benefit from wider infrastructure already in place, such as road networks and social infrastructure including schools and healthcare facilities. They are also, as noted earlier, closer to centres of employment, which remain concentrated in urban areas.
Broader benefits
This means that not only could developing in urban areas enable more housing to be delivered more quickly, but it also has the potential to bring broader, long-term environment benefits compared to building in rural spaces. The latter could necessitate wider infrastructure development and would be expected to require greater levels of commuting and car use from future residents.
There are tremendous economic benefits to be reaped from these developments, too. The House Builders Federation has estimated that hitting the Government’s overall housebuilding targets across the UK could deliver a £100bn boost to the economy and create 350,000 jobs over five years.
At a more local level, there is also research to suggest that bringing more residential living into town and city centres can provide a particularly pronounced positive impact for these areas. This is not least due to the fact that the amount of spending by residents that is retained in local authority areas is two to three times higher among those living in town and city centres compared to wider averages. The example above relating to the regeneration project in Wigan highlights the potential economic boost this can bring in practice to revitalised town centres.
Renewal and ripple effects
This analysis has shown that there are clear and obvious benefits of investing in regenerating towns and cities. These remain the places where the majority of people live and work, but many have been negatively impact by broader shifts in the retail landscape, which have had a huge knock-on effect for traditional High Streets.
Projects targeting these areas could bring a renewed sense of place and have the potential to catalyse a host of wider economic benefits as well. Moreover, a focus on mixed-use developments that integrate residential housing could reinvigorate town centres – and play an important role in addressing the UK’s chronic undersupply of new housing, which in turn has the potential to address issues with housing affordability and related inequality.
Of course, these projects are not without potential challenges, for example ensuring the right mix of housing is built in a specific area, especially where space constraints may mean that apartments are delivered rather than family homes, planning issues and so on. Developments must also take care to avoid placing strain on local social infrastructure, for example healthcare and schools. This is a topic to which we will return in our next article in this series.
These projects are not just a key priority for local authorities; they could also represent a compelling opportunity for institutional investors that are looking to invest more at a local level, and to increase exposure to real estate and housing. The key is to ensure a partnership approach across stakeholders to ensure potential challenges are addressed, development risks for investors are mitigated, and projects are delivered as part of a broader vision tailored to the needs of the area in question. Doing so should ensure that these projects are delivered successfully and realise benefits long into the future.
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