Long read: The re-invention of place regeneration

The physical regeneration model is inadequate for the complex needs of places and has failed to keep pace with technological change. Indy Johar sets out a new model of place-based change for the 21st century

The existing real estate-based regeneration model presents a conflict of interest between the short-term focus of many developers, the long-term issues facing the public sector, and the embedded local concerns of citizens, community and local business stakeholders.

The social contract underlying local regeneration seems broken. We need a 21st century governance and finance model to structurally engage all stakeholders, realign interests, and rebuild trust and accountability.

Regeneration past and present

Urban renewal as an answer to social and economic deprivation has a long history. It emerged in the 19th century as a reaction to the living conditions of the urban poor in rapidly industrialising cities. The agenda assumed that better physical conditions for living would improve people’s lives morally, physically and economically. Though the needs, tools, framing and methodologies have changed over time, the underlying assumptions have remained largely unchanged – returning cyclically to prominence, both in the UK and internationally.

It should be recognised that the renewal of housing stock and urban conditions – through investment in build quality, urban design, safety, and cultural and social amenity – has delivered significant benefits. Equally, the positive impact of real estate-driven renewal on the life chances of target populations has often been too limited. Physical regeneration is increasingly associated with driving social and economic exclusion.

To many, real estate-centred regeneration has lost its credibility, its legitimacy and, perhaps more critically, its viability. This is even more problematic in a world where our societal challenges are becoming both ever more sticky and deeply embedded, due to a combination of factors such as rising levels of structural inequality, declining social mobility, stagnating wages, growing energy poverty and a shrinking public sector.

This carries significant risk. Today’s existing social and economic vulnerabilities drive important future costs and liabilities, attenuated or exacerbated depending on future trends. Such future liabilities are likely to have enormous impact on different place stakeholders, whether households, schools, prisons, housing associations, the NHS or local authorities.

Add to this mix the political direction of travel in terms of devolution and the zero-grant future for local authorities, and you arrive at a strategic, urgent and shared need to re-examine and reinvent our place regeneration models – realigning the interests of different stakeholders towards driving long-term, viable, positive impacts on people as well as places.

The need for this transition is increasingly recognised by all leaders of this debate in the public, private or civic sectors. But the debate needs to go beyond design images and rhetoric in conference halls. It needs to acknowledge the need for a new financial model to underpin positive change.

Reaching the limits

We need to recognise that the current financial model is reaching its limit and is inadequate to address the challenges presented by neighbourhood regeneration across London, let alone beyond. The surplus generated by the sale of residential, office and retail product is – or is claimed to be – increasingly insufficient to provide (via Section 106 agreements, Community Infrastructure Levies and other tools) the meaningful social investment necessary for regeneration and long-term liability reduction. It is also increasingly decoupled from it in practice. Meanwhile, new social investment models that are starting to make an impact across the UK seem to be disconnected from physical regeneration finance and practice.

What does an alternative model need to achieve? First, the goal of regeneration must go beyond the delivery of built form and ‘good architecture’ (as narrowly described since the 1990s) and focus on creating places that generate the conditions in which people can thrive – economically and socially.

Neighbourhood economic renewal needs to go further than the idea that revitalisation can be delivered by creating local construction jobs. The positive economic impact of regeneration projects needs to last beyond the construction phase, and instead be hardwired through the introduction of strategic enterprise and employment infrastructure, from workspace to contextually embedded start-up, independent retail and other local enterprise support.

Similarly, with everything we know about the social care crisis, a growing loneliness epidemic and, conversely, the many powerful positive effects of diverse social networks, we have to support the vibrant worlds of social and civic start-ups. Their diverse activities can and should be connected to physical regeneration practice.

In other words, urban regeneration can’t be the single arrow of physical redevelopment. It has to address the full and interrelated system complexity of how economic and social change happens, dealing with issues from physical and mental health to learning pathways; from accessing good food to employment opportunities.

So: if urban renewal cannot be driven (or its success measured) by traditional real estate development approaches, complemented by environmental and community plans – the search is on for a next-generation model.

A new model of change

This next generation urban renewal model must acknowledge that change can no longer be the responsibility or the capability of a single actor, organisation, institution or sector. Change needs coalitions and movements of multiple actors, both on the demand and supply side of innovation and intervention. It also needs an institutional architecture that supports this.

This is a change model that requires us to:

• Shift the concept of leadership from being a managerial and single-organisational issue to one of building coalitions and movements around a shared purpose and mission.
• Focus on system-wide outcomes and returns on investment at that level, instead of traditional corporate and policy silos, and with investment no longer orientated around individual products and services.
• Move from accounting for individual, siloed balance sheets to a ‘whole area’ analysis of assets, liabilities and risks right across the built environment, health, education, enterprise and life opportunities.
• Reimagine democratic accountability – from traditional representational models to one driven by the integrity, diversity and inclusiveness of feedback – spanning humans, organisations, institutions and machines.
• Not just rely on external consultants’ intelligence and centralised decision-making ability, but enable local people and stakeholder organisations to be an integrated part of understanding an area, its issues and its opportunities.

Crucially, this is not just about regeneration putting economic and social outcomes at its heart. It is also about aligning this with practical finance and organisational tools that work for renewal in an integrated manner across the spectrum, from the physical – i.e. urban design and architecture – to public service provision.

This is no longer merely an option. Increasingly, it is the only path of viability, as our current financial and organisational models hit the respective ceilings and floors of viability, accountability and credibility.

If we refocused regeneration and its definition of success on the effective long-term returns achieved through the growth of human capital (health, skills, and social capital), we could leverage investment in real estate, infrastructure and institutions, as well as other finance streams that flow through our cities and neighbourhoods. This could ultimately realise a multifold return on such diverse and integrated investment: a powerful next step in the rapidly evolving world of impact investment.

If this sounds like a pipe dream, we should not forget that this is a moment of unprecedented growth in technological capability. This matters for regeneration. The systemic nature of area-based deprivation has long been understood: these issues have been recognised and researched over the course of the last 100 years or more.

Too often we have lacked the institutional alignment, business models, investment tools and, most critically, the technologies to match this awareness. Now, however, new tools and new ways of understanding deep-seated issues can help to reinvent urban renewal. In particular, three macro drivers are converging.

System change. System thinking has given us new tools focused on recognising complexity instead of ignoring the interplay of multiple factors and drivers, with multiple loops of causality. In turn, this can enable a diversity of change agents to self-organise and collaboratively address different elements of a complex system.

Often referred to as ‘collective impact’, such coalitions are not about partnerships between a handful of key institutions sitting in a closed boardroom, but rather about a new architecture for citizens, states, markets and civic organisations to work together. With the absence of a single top-down perspective, this starts to give us a fundamentally different way of organising change.

Computation capacity. Massive advances in cloud computing and big data are working together to enable a series of shifts. They unlock previously unimaginable forms of micro-contracting and transactions – such as Airbnb, the micro-trading of previously locked bedrooms; Google, which leverages micro-payments from advertising; or crowdfunding, from Neighborly to Kickstarter. This means we can now harness the power, agency and investment capacity of multiple small actors.

Equally, new phenomena like blockchains (the technology underpinning Bitcoin) can create smart contracts: digitally powered multi-party contracts, linked in real time to the achievement of certain outcomes, can bind together a range of interests.

Let’s for a moment imagine an architecture contract focused not on the delivery of a school or hospital, but on reducing truancy, improving learning results or enabling faster recovery after operations.

Impact financing. Social impact bonds (and impact financing more generally) have given us the framework to understand the cost and financial risks associated with social or environmental degradation. We now can create instruments to naturally hedge against those future risks. Though it’s still early days, there are now several social impact bonds focused on intensive early-years action in at-risk families, and on reducing re-offending rates. These have started to allow viable investments in a new ‘preventative economy’.

These sorts of investment structures need to be combined with the recognition that the most challenging social issues (like poverty, social exclusion, inequality in health outcomes, ageing, and climate change) are a class of ‘wicked challenges’ which cannot be addressed in isolation or by selecting single points of intervention. We can then start to imagine a typology of new instruments for investment, funding new multi-party coalitions for change.

So far, impact investing has largely remained a niche instrument. No attempt has been made to interrogate and adapt the mathematical models which underpin other elements of our finance system. This leap will need to happen in order to disrupt a system which too often still sees impact investing as a ‘nice little thing to do’ when all bigger commercial deals are taken care of.

In this near future, let’s imagine a new class of derivatives – impact derivatives –  a structured collection of impact contracts (with a mixture of grant, equity, outcome and service financing) that drive collaborative  working, collective impact and virtuous benefit, as opposed to just the management and diversification of risk. Let’s imagine what these new instruments could do for urban renewal. Imagine an internal rate of return that includes outgoing cash flows associated with the market failures behind area deprivation – all too often ignored in our current thinking.

The dark matter of next-generation urban renewal

Together, these shifts are creating the architecture for what I call the new ‘dark matter’ of urban regeneration: invisible, but fundamental in underpinning the real-world outcomes we should strive for.

Shared interest: recognising that wealth and liabilities will be shared and interdependent. Such a model needs to align the interests and aspirations of many material stakeholders, including the local authority, the developer, the community, local enterprise, investors, change catalysts and future major occupiers of regenerated places.

Data-driven renewal: placing real-time, big-data-driven impact analysis at the core of practice. A data and impact architecture to monitor the positive impact of regeneration across a new network of social or environmental liability holders, along with validating its monetisation.

New asset class: unlocking long-term capital markets by matching financiers (both established players and new types of impact investors) with sustainable returns aligned to public sector and community interests – for example, an ‘impact derivative’ focusing both on future social and environmental liabilities and yields through direct and indirect interventions.

Long-term inclusive economic development: delivering on the need for local jobs by advancing economic multipliers through a wide range of neighbourhood investments both large and small.

Open accountability and trust-building: creating a new class of governance tools and methods which recognise the need to grow multi-stakeholder trust as a prerequisite for innovation by the many; using smart contracts to link outcomes data to regeneration contracts in order to match trust with real accountability.

This vision is, from my perspective, the near future of urban renewal: a ‘systems thinking’ approach where all investments in a neighbourhood, town and city – from the physical environment, to social infrastructure, welfare and the local enterprise economy – are focused on the return of investment in terms of human capital. Not only will this help us structurally avoid or mitigate future social costs in disadvantaged areas, but it will also focus regeneration on being a positive investment in the untapped potential of citizens.

The question we face is not whether this future will emerge, but who will take the lead in developing the ‘dark matter’ tools, instruments, institutional infrastructure, practices and capabilities necessary to rebuild our urban regeneration industry. There are massive challenges and opportunities in the 21st century – will the UK continue to lead the way?

• This is an essay from Making Good: Shaping Places for People, a journal published by Centre for London and supported by Lendlease. The full collection of essays are available here.