Levelling Up and Regeneration Act 2023 is key to unlocking an additional £10bn annually for housing and transport investment for Development Corporations
A Cambridge report urges the government to reconsider plans to use the existing model of Private Finance Initiatives (PFIs) for transport infrastructure, warning that this approach will fail to deliver the 1.5 million homes promised over the next five years. The report from the Bennett Institute for Public Policy proposes an alternative market funding model that integrates housing and infrastructure – unlocking billions in investment while protecting the public finances.
The government’s idea to boost connectivity and economic growth through PFIs focuses primarily on transport projects that are not integrated with housing. The new report by Thomas Aubrey, affiliated researcher and founder of Credit Capital Advisory, highlights that such PFIs are expensive in the long run, with the National Audit Office (NAO) finding that financing costs are significantly higher than government borrowing rates.
Says Aubrey: “Crucially, Private Finance Initiatives do not allow for land value capture—a mechanism made possible through the Levelling Up and Regeneration Act 2023 (LURA), which could generate an additional £10 billion annually for housing and transport development.”
The £17 billion project along the Oxford-Milton Keynes-Cambridge corridor illustrates how public authorities could leverage LURA to acquire land at existing use value, enabling the sale of serviced plots to housebuilders at higher values. This approach contrasts with PFIs, which fail to capitalise on rising land values and do not incentivize large-scale housebuilding.
“A PFI strategy may provide short-term solutions for transport, but it will not help the government hit its housing targets or deliver economic growth,” the report warns. Without a shift towards integrated, market-based funding that combines housing and infrastructure, Labour’s pro-growth agenda will likely fall short. It calls for immediate action to adopt proven mechanisms using LURA, ensuring large-scale projects can deliver the housing and transport infrastructure the UK needs without burdening the public finances.
The report recommends using development corporations to raise finance from the capital market, to contract out the delivery of both infrastructure and housing, while paying back investors from market sources of funding including land value capture. This would avoid the high costs associated with PFIs and deliver better value for money. Projects such as the expansion of Cambridge or the integration of housing with the Birmingham-Manchester HS2 line are cited as prime candidates for this approach.
Says Aubrey: “Reverting to a PFI approach risks being economically ineffective, as it will not provide the housing growth needed to meet the government’s ambitions. By integrating infrastructure and housing through smarter funding models, that are common in other countries, the UK could unlock an additional £200 billion in investment over the next 20 years.”
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The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
