Exeter Development Fund came under fire last Thursday at the fourth in a series of meetings at which representatives of Exeter City Futures seek to sell the property development financing scheme to the city council, led by company CEO Karime Hassan who doubles as council CEO without any acknowledged conflict of interest.
As their teeth sink further into the fund proposals increasingly sceptical councillors are posing more and more questions to which the scheme’s proponents are unable to provide satisfactory answers.
Governance is a major focus for councillors from across the political spectrum. Bizarrely, Exeter City Futures seems oblivious to the contradiction between its repeated claim that the council would remain in control of the fund as a consequence of its equity stake (aka sale of publicly-owned land and property assets) and the necessity that at least two other public bodies also invest equity to get the scheme off the ground.
These would be another Exeter organisation that is willing to throw caution to the winds (and ignore any restrictions that come with being a charitable further or higher education institution or NHS Foundation Trust) and central government.
Simply repeating that the council would be in full control as a partial shareholder won’t make it any more true than pretending that share ownership entails operational control. And as the scheme depends on government pump-priming (whether or not board appointments would be subject to ministerial approval) it is obvious to many that its cash would confer a veto as each site comes forward with its viability gap mitigation requirements.
If central government didn’t like the housing tenure mix, for example, it seems it could simply refuse to play ball until the other shareholders fall into line, retaining the whip hand throughout.
Then what about the influence of private investors, on which the scheme depends for the bulk of its finance? As Exeter City Futures’ Roli Martin said, the fund’s sales pitch is designed to match private investors’ appetite for rental profit. If the council tried to increase the proportion of social housing included in the scheme (there is currently none) and so reduced its yields (thus increasing debt financing requirements), private investors would not budge. So the government would have to increase its stake, which would give it yet more control.
Worse, if yields fell below the levels required to service the debt and meet agreed lending terms, the assets would be at risk as they supply the security required to leverage the debt.
And as the scheme would rely on long-term asset value increases to benefit the council financially, any fall in asset values would mean loss. When Liberal Democrat councillor Michael Mitchell asked about this Roli Martin said the same thing could happen to any developer. But the city council is not any developer: it is responsible for providing a range of essential statutory services and helps take care of some of the most vulnerable people in Exeter.
When Michael Mitchell pressed the question, Roli Martin said the answer would depend on how the fund was structured: more government involvement would mean better insurance against catastrophe but also give the council even less control. Less government involvement would mean Exeter’s residents would take a bigger hit, as in Slough, where council tax bills are set to soar and all 6,700 council houses are to be sold off because of the failure of an overambitious property development scheme.
Tellingly, when Michael Mitchell asked why central government wouldn’t just fund the whole scheme instead of relying on private investment, Roli Martin’s answer was that government would not take on the risk of property price collapse.
Karime Hassan jumped in here, as he did several times during the meeting, to try to steer the discussion elsewhere. But simply saying that property investment is a one-way bet, as he did, is not enough. As Labour’s Rob Hannaford, Conservative Anne Jobson and Amy Sparling of Exeter Green Party all pointed out, councillors are guardians of public money and assets, duty bound to represent residents’ interests in their use and ensure their safety. They are not at liberty to take risks like the private sector.
Attempts to misdirect occurred every time councillors homed in on key issues. Another of these is the assumption that all 12,000 of the “Liveable Exeter” housing units the fund is intended to finance are to be built for rent, not sale. Exeter City Futures has assumed 35% of these would be charged at 80% of market rates, and so “affordable” (although NPPF does not preclude setting a lower ratio than this).
However when Michael Mitchell pointed out that 80% of Exeter’s rental market rates are nowhere near affordable for most people, and Rob Hannaford said that many working people simply can’t afford to live in Exeter any more (which is having a major impact on the city’s labour supply), Exeter City Futures’ Elaine Anning tried to suggest that lower bills resulting from improved energy efficiency would make all the difference.
Labour’s Trish Oliver also suggested that renting Liveable Exeter flats at market rate might be better than renting from private landlords, but with so much pressure to maintain yields against the mountain of private debt that would be required to finance the fund, more than £3 billion, it’s hard to see why this would necessarily follow.
And it appears that Exeter City Futures isn’t interested in whether people could actually afford to pay the rent. When repeatedly asked to state how much a two-bedroom flat would cost to rent Elaine Anning did not answer at first, then claimed she had forgotten despite answering other detailed financial questions without hesitation. Does the company assume that prospective tenants would be so desperate because of Exeter’s housing crisis that they could be taken for granted at any price?
When Trish Oliver wondered why Exeter City Futures hadn’t included any flats or houses for sale in its plans, Roli Martin admitted that the fund had been built on the assumption that Exeter property was already too unaffordable to buy. He cited the European model, in which many rent during their working lives while saving to purchase in retirement.
This view doesn’t acknowledge that Exeter rent levels preclude saving for purchase for all but the highest-paid, or that European rental tenure typically confers real autonomy, unlike in the UK. A major factor in Vienna’s first place in the Economist Intelligence Unit’s 2022 global liveability index is its plentiful rent-controlled social housing. (Exeter does not appear among the 172 cities the index covers.)
The reality in Exeter is less edifying: private developers at Water Lane admit that they plan to fill their units with recent graduates, their parents footing the bill for as long as it takes them to realise that they will have to move elsewhere for decent wages and job opportunities, at which point their landlords will simply replace them with the following year’s cohort.
When asked by Amy Sparling whether Exeter City Futures simply intends to gentrify Exeter and price the locals out of the market, Roli Martin again tried misdirection instead of providing a proper answer, inviting the meeting to think of better construction standards and public realm instead. And Karime Hassan variously tried to insist that the thousands of rented flats the scheme plans should be called “homes”, presumably for the same reason he calls bedsits “co-living”, bandied around talk of £1 billion investment pots and exhorted councillors to think big instead of worrying about the details.
When these tactics didn’t work he resorted to scaremongering, citing fears of overflowing Exeter motorway junctions, or presenting a binary choice between Exeter City Futures’ plans and business as usual, as if nothing else is possible.
While it is true that the national planning system is riddled with problems and routinely produces unwanted outcomes, no-one is explaining why Exeter should fix it on behalf of the government, or take on all the risks that would be entailed by doing so, as Exeter City Futures proposes. Nor is there any explanation of how the 42 other “garden community” schemes that are being developed around the country are coping without their own version of Exeter Development Fund to solve all their financing and site viability problems for them.
It appears that Karime Hassan’s attachment to the scheme, while it may be motivated by many other considerations besides, is partly about the need to demonstrate the viability of the new Exeter Local Plan to the planning inspectorate next June. Whether Exeter should fulfil government housing targets is one thing, as they are based on population estimates that the ONS has since admitted were faulty, but the risks of putting all our spatial eggs into a single policy basket is another. These should be clear to all who witnessed the failure of the Greater Exeter Strategic Plan.
A new Exeter Local Plan that is designed around Liveable Exeter and Exeter Development Fund could be a disaster for the city. And pending government planning reforms may change the situation so much that the new plan would need to be revisited anyway. But Exeter City Futures, with Karime Hassan at the helm, appears determined to press on with as much haste as possible, building out multiple sites simultaneously
At least Amy Sparling got a straight answer when she asked how any of this would help deliver the Net Zero Exeter 2030 plan (which, let’s not forget, is what Exeter City Futures is supposed to be doing and the reason given for sending Karime Hassan and another senior director to work there five days a week). Elaine Anning admitted that the fund isn’t designed for this purpose.
Instead it would do no more than add somewhat less carbon to the city’s grubby greenhouse gas emissions account than building 12,000 houses would otherwise have done. But as Exeter City Futures has not assessed most of the emissions that these developments would generate it doesn’t know how much.
Energy efficiency in use is its primary focus here. Operational emissions only constitute one third of the whole life cycle emissions of residential buildings, so we can be sure that the Liveable Exeter development scheme would still produce plenty. And well beyond 2030 too: it’s taken nearly five years to work up the fund so far and it’s still only at proof of concept stage.
As Anne Jobson said, much of the fund proposition is still theoretical and provisional, the outline business case remains full of assumptions and projections, and even the executive summary leaves issues unclarified. Rob Hannaford agreed, pointing out that this was the fourth scrutiny meeting held on the subject without providing sufficient detail for scrutiny.
Liberal Democrat Kevin Mitchell supported Rob Hannaford and Michael Mitchell’s views that third party critical input was required, rather than simply sales pitches. Both queried how much more time the council should spend on the fund if it wasn’t going to work, pointing at instability in central government and wondering whether it might not be time to move on.
Labour councillor Paul Knott disagreed vehemently, although the substance of his comments could have been boiled down to “I’m new here, so I’m happy to be a completely uncritical cheerleader”. If the committee members had been a circus audience, no-one present would have been in any doubt that he was a plant.
In apparently self-defeating desperation, Karime Hassan even sought to suggest that as Robert Jenrick had signed off on the idea before being sacked as secretary of state, it must have had significant merit.
Labour chair Matt Vizard concluded the meeting by agreeing that a small group of councillors should subject the fund to greater scrutiny at the same time as Exeter City Futures continues work on its governance structures, models a pilot development site and continues to hard-sell the idea to the city’s other public bodies while trying to convince councillors to put Exeter’s assets where its money will be if it succeeds.
Of course all of this was going to happen anyway, except the extra council scrutiny, because government is funding most of the work (although not the council’s senior staff salaries when they’re working for the company). It’s almost as if the Labour executive committee will press on regardless the moment it gets a chance to approve the plan without those annoying scrutiny councillors round the table.
Meanwhile, the Public Accounts Committee, NAO and CIPFA have all raised concerns about Thurrock Council’s own £1 billion borrowing and investment scheme. These include lack of transparency, decision-making by very small groups of people, borrowing that is disproportionate to council resources and an over-reliance on commercial sensitivity as an excuse for limiting information disclosure.
As barrister Leo Davidson put it: “If, as a local authority, your financial scheme depends on secrecy and cannot provide public scrutiny, it’s a pretty good clue that you’ve adopted the wrong strategy.”