Inflation & Interest Rates have profound knock on effects to Princes Parade & Otterpool Park

For anybody who has been living on another planet, it is clear the recent events at national level have had a major impact on the lives of individuals, companies and local government finances.

Let’s have a moment of quiet reflection where we are:

• Taxes – Up

• Interest Rates – Up

• Inflation – High

• Wages – Low

• Mortgages – Skyrocketing

• Rents – Likewise

• Fuel Bills – Astronomic

• Austerity – coming

• Recession – next year

Some these issues will impact on Folkestone & Hythe District Council’s projects such as:

• Princes Parade

• Otterpool Park

• Highview

• Bigginswood

Starting with Princes Parade on Thursday 20 Oct, Cllr Lesley Whybrow (Green) extracted confirmation that costs for PP will rise and that BAM who will build out the Leisure Centre will only hold there costs until the end of this month. Let’s not forget the project does not include inflation and will be affected by interest rates rises. Here’s what Cllr Whybrow and the s151 Officer had to say making clear the projected will be reprofiled, (read delayed and construction kicked down the road till 2023/24 and 2024/25) to prevent rumour, we present the facts.

 

We suspect this means that the “budget envelope” for Princes Parade will mean , costs for the project will rise beyond the £45.3m Cllr Whybrow reported on, in January 2022.

It’s clear to us that costs will rise as Construction Costs, Inflation and Interest rates have all risen and will impact on Princes Parade. Let’s not forget back in Nov 2017, the firm Martin Arnold – part owned by Cllr Jim Martin (Green) estimated the cost of the project at £67 million and concluded the Princes Parade scheme was not viable. Also it will, if Martin Arnold’s cost figures are correct, mean Princes Parade will be the most expensive Leisure Centre – for its size – in the country. Not an accolade this council will be proud if when it happens.

We strongly suspect that in the next ten days an announcement on Princes Parade will be made suspending the project due to cost rises. This we believe will be the first step in the project possibly being abandoned.

Moving onto Otterpool Park, we know that inflationary costs have not been built into the costs of Otterpool Park Garden Town.

For background, Otterpool Park Garden Town is where the Council and Otterpool Park LLP, owned by the Council, as the master developer wish to build up to 10,000 homes, across a 765 hectare site. 50% of the site will be open space, or at least that’s the intention. It was projected to cost £2.7bn, but costs have no doubt risen to around £3bn given cost increases. A planning application was submitted in April 2022 for an initial 5,925 homes up to 2036/37, with room for the rest to built out after 2036/37. Otterpool Park is covered in the core strategy under SS6 to SS9.

As the Draft Business Plan in Nov 2020 states:

All costs and revenues are day one, ie, do not include inflation. This approach has been taken because it is not possible to credibly forecast build cost inflation or house price inflation in the medium to long term.

Now do remember back in Nov 2019, full council approved £100m to be borrowed and that between then and Feb 2020, the Council borrowed £35m from other Councils to purchase the the racecourse from the Reuben Brothers offshore company Cozumel Estates, based in the British Virgin Islands for £25m.

This leaves £65m available to build out the infrastructure for phase one of the site. But given construction costs, interest rates and inflation have risen due to the incompetency of the Tory Government in Westminster, this will impact on project costs for both the Council and the developers who will purchase and build out the plots.

Of course, the Garden Town cannot be built out all at once, so the Council and the Master Developer – Otterpool Park LLP will build it out in phases. 

Dave Shore an Officer for the LLP, who are the Master Developer best outlines the place where Otterpool is now and makes clear it is the intention to get the planning application for phase one to the Planning Committee by November. However, it’s clear from the video below, and the other consultations which still need to take place, the application will probably be sometime in the new year 2023/24, nine years after the Otterpool Project began.

Interest rates have risen seven times in 2022 to combat rising inflation, by 0.5% to 2.25% – the highest level since 2008. They will go higher again. As inflation is significantly driven by energy and food prices due to external factors, it is clear interest rate increases will not help reduce inflation in the short to medium-term. This therefore means both these projects and all the others the Council have chosen to take on, will be affected, by inflation and interest rate hikes. They have and will continue to have a knock effect to construction costs. Let’s not forget there is a shortage of labour and materials affecting the construction sector; which too will play there role in these two developments.

The Council’s failure to be open, transparent and democratically accountability regarding these rising costs does not bode well for any resident of the district. No Councillor to date has tried to force the council to expose these costs. This should not be forgotten given we are close to six months out from local elections in May 2023.

The Shepway Vox Team

The Velvet Voices of Voxatiousness & Dissent