The recovery unit

The Homes and Communities Agency (HCA) needs to hit the ground running so it’s able to make big and focused investment choices and decisions from the outset. This means the communities department must allow it to tear down the divisions between its inherited programmes so it can respond to current market realities.

The HCA needs to invest counter-cyclically. It should be assembling land, investing in key infrastructure projects and selecting priority projects that will have the critical mass to help stimulate recovery in core local economies. Such an approach requires a long-term perspective and a commercial toughness – another reason why these decisions need to be taken one step away from a government department.

A couple of years ago, when we were doing the initial economic modelling to establish whether there was a case for an integrated national agency, it was clear that, in the long term, to increase housing outputs, the government had to switch the balance of investment away from gap funding in the form of grant, as practised by the Housing Corporation, to front-end investment in strategic projects, as practised by English Partnerships (EP). The problem that the economic model highlighted was that in making that switch, housing outputs would temporarily fall.

The irony is that a recession is the best time to make such a switch in public investment patterns. With housing outputs down anyway, the government can either provide short-term subsidy to prop up the market or it can behave counter-cyclically, benefiting from cheap land and plentiful labour to put us in the best shape possible to prosper collectively from a subsequent upturn.

The irony is that a recession is the best time to make a fundamental switch in public investment patterns.

Right now, EP is going to turn up at the opening night of the HCA with its clothes somewhat tattered and its lipstick smudged. Inevitably, in the current market, it has experienced a sharp reduction in its capital receipts, meaning it is struggling to deliver even its normal annual programme of investment. But rather than any criticism being levelled at EP, the communities department and Treasury should recognise that EP-style investment is exactly what the HCA and the country needs right now. Ministers should allow the HCA to move significant resources from other budgets into a bold forward investment plan.

There are some worrying signs that the agency will not be given this necessary freedom from day one. In her first speech as housing minister Margaret Beckett talked about flexing Housing Corporation grant rates upwards to ensure the continued delivery of affordable housing. In my view, that is the wrong starting point. If it is more expensive to develop our social housing using a traditional grant mechanism right now, then do less of it, and instead prepare the ground for increasing affordable housing on the wave of recovery when there will be more private money available and therefore less pressure on the public purse.

Both local government and the private development sector have crucial roles to play, too. Local authorities also need to behave counter-cyclically, using our own capital assets and resources to assemble land and deliver infrastructure and sites. We need to find ways to share risk with the private sector. For its part, the private sector needs to direct the new agency to pump-priming investment opportunities. The development industry knows best where decisive public investment now will reap the greatest regenerative benefit in two or three years’ time.

I was pretty excited when Sir Bob Kerslake, the chief executive of the HCA, announced his management team a few weeks ago. In my view, he has recruited the most able and experienced planning and regeneration team assembled in this country since the Attlee government’s post-war commissions. The communities department must now entrust them fully by letting go quickly. Margaret Beckett recently talked about “laying the foundations for recovery”. The HCA must be free to choose the right stones.