Urban planning: local development plan defects- part 5 is the fifth article of a series of articles. Local development plan – part 5 is the final part of articles series concerned with the third element of the new approach of building local development plan , funds. You can refer to the first element in my previous article here.
Funding
In studying the various plans subject of this study, they showed that all development is funded in several ways. Funds come either from the tax system in the country or from the central government to develop specific areas of the city after approval. Types of funds come from:
Tax revenue: all money coming from income and profit tax, levied from goods and services, payroll taxes, taxes on the ownership and transfer of property. Revenue from assets and services: money coming from rents, lease payments, tolls, travel tickets, congestion charges, and parking fees. Loans, debt funding, and equity. Private investment and capital: all money coming from the returns of the business, commercial project, or development. For more details about these funds, read HERE.
Cities in Europe get funds not only from local sources but also from international sources. All EU countries have access to various types of development funds that a public entity could acquire. For example, on top of the list are the UN for sustainable development, urban development fund, Adaptation Fund, and Global funds for cities development.
Whether it is a local fund or an international fund, the planners and investors planning to participate in development will face two major problems linked to the market cycle the Funds Interests rates and risk in development operations. The status of the economic cycle directly affects development projects through its direct relation to these two factors.
I have discussed in the third article that the first key element of the new approach to developing a local development plan is how we have removed a high percentage of reliance on public funds, especially on housing projects ( read article Here). The various developments required in the city as per the local development plan are funded from the types of revenue shown in this article.
The city to become more developed depends on the city’s position in the global economic (investment) network as per research conducted by various professors from Erasmus University Netherlands. There are two types of cities, a city that many cities in the world invest in, which are called Indegree or destination cities. A city that invests in various cities in the world is called outdegree or source cities. The second type is more integrated into the world investment network and has a stronger position in terms of economic growth.
A city that holds a high fiscal reserve from any source has more development opportunities locally and internationally. Development opportunities may see light depending on the country’s funding system and its regulations. The system in the UK shows some unfairness for developers to build, for that construction is very low; let us take this example:
Land value is calculated as per home office land value tables based on 35 units per hectare and unite area not to exceed 3150 Sqm in amber valley the land value is 550000£. That means the total build-up area for this piece of land is 110250 Sqm. Construction cost in the amber valley for housing is 1750£/M2 , Rent of homes is 5£/M2 .
The construction cost for this Build up area is 193£ Million.
The developer will get when he rents this total build-up area 550,000£/Month. He gets 6,600,000£/year.
The landowner or land lease gets Ground rent (land rent) 5-10% of total development revenue per year. If we exclude maintenance and services costs, the landowner gets 66000£ per year. Normally the land lease is 125 years; the developer will retrieve his capital after 193000000/ (6600000-66000) = 29.5 years.
This is, as per engineering principles, a total loss for a developer because of two things. First, an engineering project should retrieve its cost after ten years in order to get the benefit for the remaining ten years of total development life (20 years). Second, the economic cycle ranges from 10-to 15 years, which includes a half-period of recession, making development halt state and maybe in a loss zone, and money capital value decreases every year.
In order to attract investment and bring developers to the city, the following principles must be applied. First, the developer to get his capital after ten years. Second, he must get at least 20-30% revenue of total capital in the remaining ten years. The development location and the market status are encouraging to invest in, like occupancy rates are very high and economic activities are flourishing in the city.
There are various ways to encourage developers to be considered by public sector planners. For example, for our example in amber valley, and to be very fair for both landowner and developer, risk has to be reduced to a minimum for both sides. The landowner agrees on a lease agreement of 25 years. The landowner to get full development revenue for the first two years. The developer to maintain full control of his revenue for the remaining lease agreement without paying any amount to anyone. The developer then has the right to sell the homes to other owners after 25 years. In this example, the public sector authority took the land rent (if the lease is 100 years) in one year. That is 66000£/year which is multiplied by 100 years, then that equals 6600000£, and 12 times the land value just in one month.
The public sector can change its approach to developing transport, for example, building a new mass transit station by approaching a big developer. Let us say a broadcasting company like CANAL+ funds the station and takes 10% of the station’s revenue, and holds all revenue of advertisement inside the station and out for the lease period.
Hospitals are part of the city infrastructure that falls under the public sector’s development responsibility. Another way again to involve medical research organizations, pharmacology research centers, and medical schools in universities in the investment and development by having full access to the required equipment and related research activities in the building after operations.
Public sector planners prioritize what development needs to be funded and what type of fund brings more revenue at faster periods of time and minimum risk in development and operations.
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