The British Property Federation believes that the overall scale of the UK's infrastructure challenge is beyond what can be afforded by the public or private sector and that innovative solutions such as tax increment financing (TIF) need to be implemented as soon as possible.
It also wants the government to examine whether Real Estate Investment Trusts (REITS) could provide a better and simpler vehicle for investing in infrastructure. At present REITS are able to invest only in property and rental income, but further reform of the sector could open up the prospect of infrastructure REITS, mortgage REITS and potentially other sub-sectors such as hotels emerging as they have in other countries including the United States.
The BPF has welcomed the move to promote and prioritise capital investment in infrastructure as such spending has a large multiplier effect across the whole economy. But with reliable estimates putting the UK's infrastructure needs at £500 billion between now and 2020, the UK faces an infrastructure black hole unless other means to encourage investment are put in place.
‘Alternative funding is needed to unlock stalled regeneration schemes across the country and generate much needed economic growth. This means the government needs to move rapidly to implement TIF, which can fund the cost of the upfront infrastructure investment needed to make many regeneration projects work. One of the unique benefits of TIF is that it links infrastructure investment to very specific broader private sector investment because it allows payback in the form of rates income from new development,’ said Liz Peace, chief executive of the BPF.
‘REITS could provide a further means of deploying infrastructure investment if the government is willing to explore a possible widening of the definitions for good assets and income beyond property and rental income and it may make sense to look at a range of options in that space for further REIT reform,’ she explained.
‘The government might even consider the merits of a national infrastructure investment bank capable of attracting wider private investment, something the President Obama is actively exploring in the USA, and incentivising local authorities to invest more in the infrastructure through the wider use of municipal bonds,’ she added.
