Surviving the Economic Crisis: Can Eco-Towns Aid Economic Development?

Abstract

Like most major economies aiming to attract knowledge-based industries, the UK has sought (prior to the onset of the global economic crisis) to address chronic real estate shortages by planning for more housing, built to modern environmental standards. In June 2008, the UK Government's National Housing and Planning Advice Unit called for 297,700 new homes delivered per annum. However, the credit crunch has thwarted this ambition, at least in the short term. With a mere 75,000 new homes built in 2008, and a possibly lower number in 2009, this target will almost certainly be missed for the 2016 finish date. The UK Government's eco-town programme has invited considerable controversy. Advocates argue that this programme is a necessary step to help kick-start an economy where one-fifth of the GDP is tied to real estate activities; and to lead the way towards low-carbon sustainable living. In contrast, opponents see eco-towns as another socio-economic experiment with uncertain outcomes. Drawing comparisons with the legacy of the post-war ‘new towns’ programme in the UK, this paper will examine the organisation and finance structure of the current eco-town programme. The paper concludes that, whilst the eco-towns programme may eventually succeed, the UK has missed an opportunity to maximise the projected benefits from the programme, by opting entirely for new settlements, and not including existing housing stock. A more serious concern raised in this paper focuses on the low level of public-sector involvement in financing eco-town developments. How realistic is it to facilitate private-sector engagement in the development of new settlements, without significant public co-funding, especially when trying to achieve sustainable communities? A private-sector led development will naturally seek to vary the scale and pace of development to suit market conditions; and the profit margins of the bidding developers will be the most decisive determinant in the development process, especially under limited credit availability. In the current economic climate, raising capital will be a massive challenge to developers because no matter how buoyant the eventual market might be, both banks and the Real Estate sector are still afraid that a repeat disaster may not be far away. There is little dispute that the financial cost of developing an eco-town will be enormous, so there must be sufficient public financial backing. Higher levels of public–private partnership, similar to those employed in the past (following the Town Development Act 1952, for example, in the UK) may be the best way forward. Experience from Singapore and other countries points to this model of investment as potentially the best way forward for the Real Estate industry, especially where social and environmental agendas are also involved.