Advancing Revolving Funds for the Sustainable Development of Rural Regions
1.1. Problem Specification
1.2. Aim of Research/Research Questions
- What are the particular challenges for the ARF in promoting the sustainable development of rural regions?
- What are the essential features and mechanisms of the ARF?
- What are the most important design aspects for the ARF in rural regions?
- What are the key input parameters for the financial modelling of the ARF for rural regions?
2. Theoretical Framework
2.1. The Theory of Spatial Organisms
2.2. New Institutional Economics, Barriers and Incentive Schemes
2.3. Existing Fund Models
- The mobilisation of additional resources and investments (public and private funds, leverage effect);
- Risk diversification by spreading the fund resources over several projects;
- Increased pressure for efficiency due to repayment obligation;
- Sustainable fund returns allow continuous investments;
- Periodic review of projects (target/actual checks);
- Use of skills from public and private shareholders, including the financial sector.
- Lower appeal due to persistently low interest rates on the capital markets;
- The easier management of existing subsidy-based programs for municipalities;
- The need to implement new administrative structures and knowledge of urban development funds on the public administration side;
- A lack of compatibility between urban development support and funds;
- A lack of economies of scale due to rather small project sizes;
- High administrative and accounting costs (ERDF funds);
- The difficult pre-financing of ERDF resources (reimbursement principle) in tight budget situations; this may partially be offset by interest income from the fund.
- Independent fund management made it possible to better meet local needs.
- The establishment of a holding fund made it possible to set up new funds where necessary and to integrate them into different political fields of action.
- Small capital volumes mitigate reservations regarding the decision between subsidy or fund.
- The opportunity to re-use the fund capital without European restrictions is recognised.
- The integration of private actors proved to be difficult, although JESSICA called for it: the governance structure should be designed to be easily manageable so that private capital is combined with fund resources only at the project level.
3. Materials and Methods
3.1. Initial Research Phase
- The investment needs of the ARF;
- The organisational structures of the ARF;
- Financing the ARF.
3.2. Research Approach
3.3.1. Heterogeneity of Rural Regions
3.3.2. Building Stock
3.3.3. Building Owners
3.3.4. Residential Markets
4.1. Postulated Features of ARF Mechanism
- The reduction of land use in rural regions, especially for residential development under the conditions of demographic change;
- Strengthening the development of the centre and the sustainable preservation of the historical building fabric; the revitalisation of the centre through mixed and new use;
- The adaptation of the settlement area to demographic development with new forms of housing and land layouts;
- The more efficient use of funding;
- The strengthening of regional cooperation and a responsible society;
- Accounting for interdependencies and synergies of spatial organisms/social systems.
4.2. Essential Mechanisms of ARF
- Mode A: The ARF buys and refurbishes a property—for example, by order of a municipality. Therefore, the ARF itself acts as a developer and resells the property. In this case, one classic and one more complex procedure can be distinguished. The regular way is sale to the ARF and resale by the ARF after refurbishment to a new owner. Another way could be that the seller keeps shares, resulting in an owner community with an ARF or, later, even in a cooperative with new owners or ARFs. As long as the ARF holds the shares it needs to be capable of acting in and maintaining the interests of the regional settlement development, this is appropriate. The sellers can reinvest their income in other ARF projects and reduce their cluster risk by the distribution of their investments. Simultaneously, the ARF offers a possibility to invest in the regional housing market and can strengthen identification with the region as a spatial organism/social system. In both cases of this mode, it must be ensured that land transfer tax is charged only once to avoid an unwanted barrier. If necessary, contractual arrangements must be adjusted in comparison to redevelopment agencies.
- Mode B: No urban development intervention/activation is needed, and the ARF acts as a creditor. In contrast to regular credit programs, the ARF can additionally assume responsibility for a refurbishment, if the financial burdens for owners are too high or owners are not rated creditworthy (e.g., due to the age of the owner). The owner repays the loan within a fixed period. The ARF secures the credit and its interest in sustainable settlement development in the region through mortgages. Problems arising through foreclosures can be avoided, and the ARF regains ownership for a fixed price.
- Mode C: The ARF acts as an active mediator—regarding usufruct right. Owners contribute their land to the ARF and thus support a sustainable densification of settlement structures . The ARF promotes the vacant sites, qualifies them and reduces or eliminates encumbrances. If needed, the ARF supports future users with expert advice and know-how.
4.3. Design Aspects of ARF
4.3.3. Communication and Incentive Schemes
4.4. Input Parameters and Financial Modeling of Regional Funds
4.4.1. Overhead and Other Costs
4.4.2. Financing Sources and Fund Volume
4.4.3. Legal Parameters
4.4.4. Revolving Part, Interest Rate, Repayment Periods and Fund Term
5.1. Findings and Implications
- The ARF is to have a regional focus. This is a novelty for spatial development but is necessary, especially for intelligent rural regions. For example, the housing needs in rural regions are usually not locally but regionally oriented . The regional orientation also helps to avoid intraregional competition for those willing to build. In order to be able to deal with individual factors, which can vary from region to region, the ARF should also not have a supra-regional orientation. Regional funds can be governed by a holding fund.
- Another novelty is that the ARF no longer has a sectoral approach. It can invest in buildings of any use type as well as in surroundings and infrastructure.
- The ARF combines public and private capital from owners and other, in particular, locally rooted, investors and stakeholders.
- The revolving principle offers the possibility of empowering settlement development through refluxes of funds with a permanent—or at least long-lasting—instrument that sustainably increases communities’ scope for action.
- The ARF strategy or basis for action should not, as in the past, be based on defined measures or bundles of measures in a firmly defined area. Rather, regional funds could be established in all possible regions, each with their own characteristics. Furthermore, it is not subject to a specific funding program or funding logic. This differentiates the concept from common action-based funding. Previous approaches, at least in Europe, were always tailored to model regions. The ARF is designed as a general model.
- The ARF enables the value preservation of existing building substance and promotes building culture as well as energetic refurbishments. It contributes to affordable housing in rural regions.
- The ARF strengthens regional economies and crafts. The approach and the supporting structures strengthen the municipalities and regional cooperation, since the municipalities are permanently involved not only in setting and developing priorities but also in applying and implementing the instrument.
5.2. Need for Ongoing Research
- Is a minimum size for regions required to introduce the ARF?
- What is the distribution of tasks, and which decision-making and consultative bodies within the supporting structure(s) are necessary?
- What professional support for the technical/organisational processing of the fund may be necessary?
- How should buildings and land in regional funds be managed?
- Which property types should the fund primarily address (differentiation from the free property market)?
- To what extent are temporary interim uses possible for buildings and land in regional funds?
- How can processes and modes of operation for the ARF be meaningfully operationalised?
- What are the potential economic, social and ecological impacts of the ARF in rural regions?
Conflicts of Interest
|Country/City||Targets and Measures||Level of Funding||Financing Source||Allocation|
|(a) Promotion of energy efficiency |
(b) Urban development projects
|(a) EUR 4 m |
(b) EUR 4 m
|-||Credits below market level|
|Promotion of urban (and energy) renovation in the historic city centre||EUR 40 m||-||Mix of credits and grants|
|Revitalisation of properties and areas for commercial development||GBP 60 m||-||Credits below and at market level|
|Real estate development and refurbishment in the commercial and office space segment, depending on social impact||EUR 66 m||EUR 51 m ERDF resources, |
EUR 15 m public co-financing
|Credits below the market level determined according to social criteria|
|Improving energy efficiency in buildings||EUR 40 m||EUR 30 m ERDF resources, |
EUR 4 m from City of Riga
|Credits below the market level, discounts if targets are achieved, supplemented by grants|
|Urban development projects||EUR 40 m||ERDF and funding of the BBVA (Spanish credit institution)||Credits below market level and equity participation|
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|Insufficient liquidity and credit rating||Life situation |
(age, income, etc.)
|Protection of historical monuments||Negative reports|
|Investor-user dilemma||Reservations concerning preparatory work||Concern about structural damage||Lack of technological/economical knowledge|
|Long payback period||Preference for visible values||Planning and implementation too difficult||Adverse third-party influence|
|Complex grant application||Practiced habits||Fear of aesthetic limitations||Insufficient quality of advice|
|Emotional aspects/biases (e.g., concern/fear, affect, anchoring, lock-in, and sunk costs fallacy)|
|Lack of information/lack of knowledge/information asymmetries|
|Disposable per Capita Income||Mortgage Lending Rate|
|Borrowing Potential||20,000 €/a||94,345 €||78,620 €||66,558 €||41,365 €|
|21,000 €/a||96,703 €||80,585 €||68,222 €||42,399 €|
|21,500 €/a||99,062 €||82,551 €||69,886 €||43,434 €|
|22,000 €/a||101,421 €||84,516 €||71,550 €||44,468 €|
|22,500 €/a||103,779 €||86,482 €||73,214 €||45,502 €|
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Wasser, N.-M.; Ruhstorfer, P.; Kurzrock, B.-M. Advancing Revolving Funds for the Sustainable Development of Rural Regions. Sustainability 2020, 12, 8455. https://doi.org/10.3390/su12208455
Wasser N-M, Ruhstorfer P, Kurzrock B-M. Advancing Revolving Funds for the Sustainable Development of Rural Regions. Sustainability. 2020; 12(20):8455. https://doi.org/10.3390/su12208455Chicago/Turabian Style
Wasser, Nils-Magnus, Philipp Ruhstorfer, and Björn-Martin Kurzrock. 2020. "Advancing Revolving Funds for the Sustainable Development of Rural Regions" Sustainability 12, no. 20: 8455. https://doi.org/10.3390/su12208455