Funding infrastructure for large-scale housing and placemaking

You have planning, a design and a strategy, but now you need the money. How do you fund a placemaking scheme?

Despite the Government’s focus on the delivery of new homes, the challenge of funding large-scale developments remains a significant barrier to their construction. Labour has pledged that it will deliver 1.5 million new homes during this Parliament, with an ambitious programme of “new towns” and the development of large areas of the “grey belt” (poor quality land located in and around existing green belt land). In reality, many sites that are well-suited for large-scale housing projects face significant barriers to development, including substantial up-front infrastructure costs.

When coupled with planning delays, rising construction costs and volatile economic conditions, developing, investing in and funding large-scale housing projects may be unappealing.

Infrastructure is not confined to the front end of the project. While the delivery of roads, sewers and power lines is often crucial to getting a development started, later phases include the delivery of new schools, health centres, shops, sports facilities and public transport links. With a rapidly growing population, there is an increasing demand for good quality and resilient infrastructure alongside the delivery of new homes themselves. How can infrastructure costs for large-scale housing projects be funded and what are the associated challenges?

Public finance

Unsurprisingly, given the Government’s desire to see more homes built, there are a number of sources of public funding available for delivering the infrastructure needed for housing projects.  

The Homes Building Fund (HBF) is administered by Homes England. The HBF is a flexible source of funding for non-housebuilding activity that is required to unlock large development sites and to enable developers to use their capital resources and expertise to deliver housing quickly. While more commonly associated with the provision of general construction finance for housebuilding projects, part of the HBF has been specifically ringfenced for the provision of infrastructure for these projects.

This infrastructure portion of the HBF provides loans of up to £250 million to small and medium-sized housebuilders that struggle to access development finance from the private market. The loans are offered on a long-term basis, typically over a period of at least 20 years, with the HBF prioritising brownfield developments and partnerships with SMEs which require significant investment. However, the terms on which the loans are offered are fairly formulaic and they may not suit developers with bespoke requirements or unusual or more complex sites. As many of those that have dealt with Homes England will know, the terms are often offered on a take it or leave it basis, with little room for negotiation. Pressure on the public purse means that the Government has competing priorities on its pockets, so HBF is likely to prioritise more straightforward developments which can be delivered quickly.

Other publicly funded options are available; for example, the Brownfield, Investment and Land Fund (BILF), which again is administered by Homes England. The aim of the BILF is “to support a diverse range of partners, both public and private sector, to unlock strategic housing sites including housing-led, mixed-use opportunities where brownfield, infrastructure or land projects face delivery and/or viability challenges”. The BILF supports the delivery of smaller, locally important sites, as well as larger-scale transformative projects of regional or national significance. There appears to be a particular focus on regional northern cities, with the recent funding of several schemes in Leeds, Bradford and Manchester.

One promising recent example of using public investment to unlock large-scale housing development is Barking Riverside, where L&Q have partnered with Homes England for the delivery of 20,000 new homes. A large portion of the £124 million has been earmarked for site preparation works and to develop flood defences, an energy centre and green open space. The investment in the site infrastructure was crucial to the delivery of the project and previous investment by Homes England in an earlier phase was used to deliver the core transport infrastructure.

Clearly, given the Government's ambitious housing targets, public funding has a key role to play in the delivery of infrastructure. The Government needs to consider other methods of public funding, whether this is using fiscal rules to borrow infrastructure funding or local authorities considering localised tax schemes (like special purpose taxing, business rate districts or tax increment financing) to fund infrastructure. In theory, better local infrastructure should be worth the local investment, driving up local property values and rents, improving economic growth and quality of life locally. 

Private finance

An alternative route for financing infrastructure for housing projects is through the private market. However, the largest developments require considerable up-front investment in infrastructure, and often enabling works, before any housebuilding can begin. The cashflow issues and slow rate of return can make borrowing expensive and lending risky; not all lenders have sufficient interest or appetite to provide this type of funding.

The way in which housing projects are typically procured makes investing in housing projects riskier than investment in traditional real estate developments. Housing projects are often delivered through construction management, where a developer engages the designers and trade contractors either directly or indirectly (through a third-party developer) through individual design and workmanship packages. In practice it means that there is significant timetabling and coordination risk (a key factor where there are significant infrastructure works to be sequenced). This is often further complicated by the need to get contractors on site early to start their enabling works. Such infrastructure works are usually carried out on a standalone basis and will not necessarily be neatly subsumed into the main works. No one party has single point design responsibility for the whole of the project, which means that a funder or investor will be asking for reliance against each package. Given there may be only one party with responsibility for certain packages, there is also a considerable insolvency risk, which is a particular concern given the current market conditions and the high rate of contractor insolvencies. This can make it a hard sell to a funder.

Private and public finance – the best of both worlds?

We are seeing an increasing mix of partnerships investing in housing schemes. Typically, these are a mix of public and private finance. Such partnerships bring together different skill sets and priorities and the finance power to reduce the risk of the projects, making investment more attractive for all parties. A few examples include Shawbrook partnering with the British Business Bank to deliver their Enable Build programme and HSBC teaming up with Homes England to provide developers such as Tilia Homes and Wyatt Homes with the finance they need to unlock the development of their sites. In the former case, Tilia is aiming to deliver 1,250 homes each year off the back of such investment. Given the ambitious UK housebuilding target, the reality is that more such partnerships are needed to deliver the required scale.

The future?

If the Government wants to promote and develop more housing, then provision of finance for the infrastructure of these schemes is crucial. Lots is written about how we fund housing, but there is often little focus on how we will pay for the backbone, the infrastructure, that is needed to service the new homes and required to develop the new homes in the first place.

The funding gap for infrastructure is not unique in the housebuilding space, nor is it new. After £300m being spent, the longest planning application in history, and considerable delays, the Lower Thames Crossing finally received planning consent earlier this year. The challenge now is how it will be paid for. The solution is likely to be a mix of public and private money.

We need to get creative about how we fund infrastructure.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, June 2025