Why the Greater South-East was the big Housing Infrastructure Fund winner

Last week five of the UK's elected combined authority mayors joined forces to write to the Prime Minister to complain about the proportion of the government's recent £866m Housing Infrastructure Fund (HIF) allocation that was spent in London and the South East.

Left to right: Steve Rotheram, Andy Street, mayor of Cambridgeshire and Peterborough James Palmer (not a signatory to the letter), Tim Bowles, and Andy Burnham
Left to right: Steve Rotheram, Andy Street, mayor of Cambridgeshire and Peterborough James Palmer (not a signatory to the letter), Tim Bowles, and Andy Burnham

In the letter, the metro mayors of Liverpool, Manchester, the Tees Valley, the West Midlands and the West of England said they stood ready to "deliver ambitious plans to build more homes" but were losing out due to how the formula used to calculate fund distribution worked. Andy Burnham, mayor of Greater Manchester, added that investment in transport and housing had "for too long… been skewed towards London and the South East."

On one level, certainly, the metro mayors have a case. Of the £866m allocation for the HIF’s Marginal Viability Fund, local authorities in the three south-eastern regions (as was) of London, the East and the South East got £434m, just over half of the money, despite making up a third of the regions. And some combined authorities do appear to have seriously missed out, with the West Midlands and Liverpool, for example, both seeing only one scheme funded. In total the combined authorities who signed the letter together got just £124m in funding, only just more than the £111m London received on its own.

The mayors’ intervention also follows recent revelations that up to three quarters of funds so far allocated under government agency Homes England’s £2bn infrastructure loans fund have gone to projects in London and the South East.

The government chooses which schemes to back through a selection process which includes a formula designed to calculate the benefit to cost ratio (BCR) of the funding. This formula takes account of land value uplift caused by any intervention, and the upshot is that areas with higher land values give a much better BCR. An analysis by James Tindale, economics consultant at consultancy Lichfields, shows a public investment of £20m to produce 2,000 homes in London will produce a BCR that is three times that of a similar investment in Yorkshire or the West Midlands – despite the housing output being the same. He said this issue "illustrates the need to take account of a range of wider economic impacts when appraising the case for a public sector intervention."

There is some evidence the government is already starting to adjust this methodology: a "rebalancing toolkit" was last year announced to prioritise infrastructure investment in less productive parts of the UK.
Nevertheless, not everyone agrees there’s a problem. For a start, the 50 per cent share for London and the South East looks less skewed when you consider that 43 per cent of the English population live in that area.

Furthermore, the Marginal Viability Fund is only part of the HIF story – with far more money available in the Forward Fund, which hasn’t been allocated yet, and which is designed to help much larger projects. In addition, some argue that higher funding levels in the south simply reflect the higher housing need and relatively greater housebuilding challenges. Paul Swinney, head of policy and research at think tank Centre for Cities, said: "Funding should be determined by what are places’ key challenges. Housing is probably the number one economic challenge in the south east, but if you look further north housing isn’t as big an issue.

"If you argue that everywhere’s just got to get the same, it becomes an exercise in jam-spreading, and you don’t really focus on the problems we face."

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