Understanding the UK's struggles with mega projects
Making sense of the latest trends in property and economics from around the globe.
5 minutes to read
Readers of this newsletter have differing views on HS2, whether they are investing or working in Birmingham and Manchester, or are property owners along the line that have struggled with compensation.
We can all agree that it's expensive, and that aspect says something about Britain's approach to mega projects. Figures have grown so quickly that it's difficult to get a handle on costs. As of last year, the generally accepted figure for building the entire network was in the region of £100 billion, with phase one alone coming to £44 billion. That's up from £32 billion a few years ago. FT calculations as of this morning suggest that what remains of the project will cost £91 billion, which goes some way in explaining why the government is mulling curtailing the line.
Even if we take the £100 billion figure, that puts the cost of HS2 at around £200 million per kilometer. A benchmarking study conducted by PWC - admittedly back in 2016 - assessed 20 European high speed railway networks and found “that high speed rail lines can be delivered under certain circumstances at an average cost of £32 million per km”. Getting to the bottom of the discrepancy will be essential if the UK is going to meet the various challenges it faces.
“It is about the number of resources that we use here in the UK that are linked with planning; the environmental matters, the stakeholder engagement, all the consents that are needed," Ricardo Ferreras, construction director of infrastructure specialist Ferrovial told New Civil Engineer's Future of Rail conference last year. "As an example in Spain the government will get all consents, and all environmental permits, and then when they award the contract to a contractor, the contractor can just focus on delivering the project...I am not saying it is worse [in the UK] but it is different and it takes much more man power and obviously that increases the cost of the project."
On track
Crossrail has been open since May last year, making it old enough to reveal some of the benefits of getting these projects right. Analysis of employment data from Oxford Economics shows that almost 200,000 new office jobs have been added in the local authorities that are served by Elizabeth line stations in central London during the last five years. This represents just over 70% of the change in office employment across London.
That figure comes from a Knight Frank review of the performance of central London office markets that have been affected by the opening of the Elizabeth line in 2022. The findings reveal a virtuous circle of rising development activity, consisting of almost entirely sustainable buildings, which attracts more, large occupiers, which are willing to pay higher rents, which leads to more development activity, and so on.
The report, produced in conjunction with the London Property Alliance, makes seven recommendations that would ensure both that London continues to capitalise on Crossrail, and also learns how to better get projects like HS2 over the line successfully. Those recommendations include making important projects part of a National Transport Strategy, complementing the work of the National Infrastructure Commission, and overseen by a cross-party strategic infrastructure group to drive them forward through election cycles. Others include better use of innovative funding models, like Tax Incremental Financing.
Net zero
Big projects are expensive and the benefits often lie many years ahead. That makes conversations about who bears the costs contentious, particularly now that borrowing costs have risen so sharply.
The question of costs presents an acute problem when it comes to emissions from homes, as I revisit regularly. The government's decision to postpone proposed tighter energy efficiency rules for landlords makes some sense when rising rents are causing a crisis for young people, but the issue must be dealt with eventually.
“Delaying green policies just means they’ll have to be implemented much faster, later, pushing up the cost for everyone,” Simon McWhirter, deputy chief executive of the UK Green Building Council told the FT last week.
That truth explains why the private sector is investing so much in green innovation anyway. The direction of travel is set - whether by national commitments or visible shifts in the climate. It's also the topic at the heart of this week's edition of Intelligence Talks, in which Anna Ward speaks to Barratt’s technical and innovation director, Oliver Novakovic. Oliver is testing new technology at the Energy House 2.0 in Manchester on preparing homes for climate change. Anna is also joined by Flora Harley, who has just surveyed 45 pan-European investors on their approach to net zero. Listen here, or wherever you get your podcasts.
Andrew Shirley looked at the government's decision to delay various green policies through a rural lens in his note this week.
First time buyers
The number of first-time buyers fell 22% between January and August this year compared to the same period a year earlier, according to Halifax figures out yesterday. The average age of those buying their first property is now 32, up by two years over the past decade. The average deposit needed is now £54,116.
Affordability is a problem, but falling house prices and strong income growth has marginally improved the house price to income ratio for first time buyers - falling to 5.1, from 5.8 in June last year. That makes house prices for first time buyers are now at their most affordable since June 2020.
In other news...
From our team - Will Matthews considers the outlook for interest rates and Mark Topliff outlines what Agroforestry can offer land managers.
Elsewhere - Meta pays £149 million to surrender its lease at 1 Triton Square (British Land), workplace sickness soars to highest level in over a decade (Telegraph), developer halts onshore wind farm due to rising costs and windfall tax (FT), investment in clean energy ‘must double to $4.5 trillion a year’ (Times), and finally, top 1% gain the most from inheritance tax cut, the IFS says (Bloomberg).