In ignoring new towns in the Budget on 26 November, the government has risked delaying or stymying their delivery.
The government has nailed its colours to the mast with a pledge to deliver 1.5 million homes this Parliament and the Secretary of State for Housing, Steve Reed, has gone further by tying his reputation to that target.
Yet only a fraction of those 1.5 million homes, if any, will be in a designated new town unless action starts now
New towns are, by definition, long term. But the Budget is not about what happens in the 2040s. It is about what happens this parliamentary term: it should have allocated initial funding and in doing so, instilled confidence and enabled the New Towns Taskforce to move from a shortlist of sites to real programmes that investors, landowners and local authorities can back.
UPFRONT FUNDING MATTERS
The headline numbers are daunting. Analysis suggests that each new town will cost between £3.5 and £4 billion to deliver, or around £400,000 per home – far above the UK’s average house price of £272,000 (UK House Price Index). And that’s before we even factor in that 40% of the new town homes are to be allocated as affordable housing.
The cost per home is due to the fact that infrastructure – transport, utilities and community infrastructure – must arrive years ahead of receipts from homes and business rates.
Community Infrastructure Levy funds will not cover the cost. Nor will housebuilders shoulder this funding risk, as their model is geared towards phased outlets and cyclical demand , not multi-decade infrastructure programmes.
That is why the New Towns Taskforce has been explicit in calling for significant upfront government funding, including long term loans to development corporations and a clear priority for new town infrastructure across departmental spending. Without that early commitment, delivery stalls.
LEARNING FROM MILTON KEYNES
Post-war new towns were delivered because the state borrowed, assembled land at agricultural value and recycled the uplift to pay down the debt.
In Milton Keynes, the development corporation’s costs were eventually reimbursed to the Treasury through development receipts. It worked, but it took three decades, until 1997.
Recreating that model would mean this Parliament’s new towns not being paid for until the 2060s. That is significant because today’s fiscal politics are very different. The Chancellor’s investment rule sets out that net financial debt should fall as a share of the economy by 2029/30.
So the question for the Chancellor is not whether the government writes a blank cheque for new towns – because it will not – but whether she can allocate early investment credibly: loans, guarantees and tax-backed instruments tied to tangible assets and predictable revenue, rather than as simple grant.
FOUR DECISIONS THAT CANNOT WAIT
- First, the government should set out a specific loan and guarantee offer for new towns, routed through the National Housing Bank and Homes England.
The Taskforce has pointed towards long term loans to development corporations. The Chancellor needs to confirm that principle, put an order of magnitude on the facility and state clearly that core new town infrastructure will be eligible.
This does not need to cover the full cost of the twelve new towns at approximately £4 billion per town, but it must be large enough to signal intent – say £0.5 billion per town.
- Second, we need clarity on whether land value will be captured and recycled. Post-war corporations bought low and sold high. That’s unrealistic today given modern land values and case law.
The Budget should’ve signalled preferred mechanisms, whether that is a standardised multiplier to existing use values, CPO reforms or other approaches. - Third, the Chancellor should make a political commitment to delivery. The House of Lords Built Environment Committee has been clear that delivery requires a senior minister with cross-departmental responsibilities.
The government has already promised a New Towns Unit. The Treasury must confirm its remit, its relationship with Homes England and whether development corporations will be the default delivery vehicle. Investors will take a different view of schemes that sit under a statutory corporation with clear powers and a long horizon.
- Fourth, there must be a realistic line on affordable housing expectations. A 40% minimum, with half for social rent, seems idealistic.
The recent publication of the government’s Homes for London policy paper demonstrates that sometimes it is necessary to be flexible with such requirements if development is to proceed at all. The Chancellor acknowledge the viability challenge and tie funding to flexible, evidence-based trajectories.
MAKING SPACE FOR PRIVATE CAPITAL
It goes without saying that the point of upfront public funding is to unlock far larger flows of private capital, not to replace them.
Institutional investors like long duration assets, where income is stable inflation-linked assets. Affordable housing, later living and Build to Rent (BTR) have all attracted serious interest. New towns can too, if there is a coherent delivery framework.
Crucially, investors need confidence that a primary school, a rail station or a spine road will arrive on time, that land assembly powers exist and that policy will not suddenly shift.
The same applies to master developers. A long term master developer, backed by public partners, can offer serviced plots to housebuilders, taking on the early, expensive pieces of the jigsaw. But that model only works if those pieces have committed funding.
So while the Budget was not expected to decide the detail of how the twelve new towns will be financed, it should have sent a signal that the government is prepared to share risk at the front end so that private capital can shoulder it thereafter.
A TEST OF SERIOUSNESS
The missed opportunity is the government showing how it can use its balance sheet for long-term housing delivery, even if that means re-allocating capital funding from other housing interventions.
The sums required now are modest compared with the long-term investment they unlock, whereas inaction means delayed new towns, mounting pressure on local authorities, higher housing benefit costs and lost growth.
