The UK government has provided an update on its New Towns strategy following its response to the New Towns Taskforce report of September 2025. But the question remains how might its ambitions for homebuilding and placemaking at scale be financed?
It has been estimated that the infrastructure costs per new town of 10,000 homes is in the region of £4bn. Some of the new towns are expected to have more than 40,000 homes which will drive up infrastructure costs considerably. Furthermore, infrastructure often has to be delivered at a larger scale to generate a positive net present value for the project. My own estimates from assessing a number of projects across city-regions where demand for housing is high, indicates upfront infrastructure costs are likely to be between £4bn-£13bn.
Although there has been no specific announcement on how the government is planning on funding and financing the [seven] announced New Towns, it did announce its infrastructure strategy in June 2025. This implies the use of a mixture of government grants as set out in the Spending Review, alongside Public Financial Institutions such as the National Housing Bank (NHB).
The core problem for any government trying to fund infrastructure is to solve for the “maturity mismatch problem” where projects have high short-term costs with longer term revenue streams, and to do it without damaging the public finances. But various solutions to this problem have been successfully deployed since the 19th century, when public corporations issued long term debt backed by identified hypothecated cash flows to pay back the bond holders.
For example, 40-year bonds were issued by the Metropolitan Board of Works to finance Bazalgette’s sewer system for London. The Central Electricity Board in the 1920s issued debt at similar maturities to pay for the national grid. The post-war New Towns borrowed at 40-year maturities from the Public Works Loan Board during the 1950s and 1960s. This method has been copied widely across Europe, for example with the Oresund Bridge linking Denmark and Sweden issuing debt with a payback period of 50 years. And when Paris embarked upon a major project to improve public transport opening up new areas for housing, they issued debt of up to 40 years.
In all of these cases, the infrastructure was delivered swiftly and bondholders were paid back from long term hypothecated revenue streams. Typical revenue streams include land value capture from selling plots with planning permission, business rates, as well as car park -affordable housing and transport/utility receipts.
This approach also improves the public finances given that it delivers infrastructure which is needed to boost productivity growth while not placing any claims on future tax revenues. This reduces the need to issue sovereign debt and therefore is a major factor in maintaining lower government borrowing costs for current government expenditure.
Despite the successful use of this mechanism to build large swathes of the UK’s infrastructure as noted above, governments since 1992 have pushed for a combination of government grants in conjunction with loans and subsidies enabling private projects to get off the ground. But this approach struggles to solve for the maturity mismatch problem at scale, hence the Chancellor’s decision to continue to utilise a Public Private Partnership will come up against a number of significant barriers.
First, the increased capital investment earmarked in the 2025 Spending Review for Ministry of Housing, Communities and Local Government (MHCLG) and Department for Transport (DfT) already appears to already be allocated: the bulk of the additional MHCLG grant will support the Affordable Housing programme while £15.6 billion has been allocated to transport for Northern elected mayors. Hence, it is highly unlikely to be allocated to New Towns.
Second, there is very limited fiscal headroom for the government to issue more gilts. With government debt to GDP close to 95%, gilt investors are increasingly wary of further issuance given the declining demand for gilts. This is one reason why gilts have become so volatile in the face of external shocks – and also explains why so few European governments use this approach for infrastructure.
Third, although the Government’s Infrastructure Strategy allocated £16bn of financial capacity to the NHB which is a mixture of loans, equity and guarantees, the Treasury’s own forecast for the use of Financial Transactions (Table B4) from now until 2029-30 indicates MHCLG will only use £5.4bn of capacity, and zero for the Department for Transport. The government only expects to use a third of the capacity of the NHB. Hardly a ringing endorsement of its own strategy. This will also mean the amount of private sector capital that can be crowded in will be significantly lower.
The current approach is therefore wholly unsuited to deliver the upfront public infrastructure the New Towns need if they are to be successful. There is not sufficient grant funding available and the government’s public private partnership (PPP) does not work at scale by the Treasury’s own admission. Where the PPP approach can work is for small-scale private projects that need a government subsidy to get off the ground such as the redevelopment of Brent Cross where the developer was provided with a £100m subsidised loan to enable more than 6,000 new homes But it would not work for 40,000 homes.
This is why a group of investors managing about £2 trillion in assets have expressed their interest in a letter to the Chancellor (it was covered by the FT here) about buying public corporation debt to pay for New Towns including along the OxCam arc. These bonds provide good returns for investors, will help drive productivity growth, and place less pressure on the public finances as they are self-funding.
Yet rather than doing what has worked well elsewhere, and in the UK in the past, the Government’s approach will struggle to scale, place greater pressure on the public finances and keep gilts volatile during periods of stress. If the new towns are not delivered, the government will only have itself to blame.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy where it was first published
