In his spring Budget, George Osborne announced that £14 million would be invested in a project by Birmingham City University to be called STEAMhouse.

BCU's prospectus for the project requires the reader to penetrate a thicket of techno-jargon ("innovation ecosystem, mixed incubation, Digital Catapult").

But essentially it is an ambitious programme to stimulate economic growth and development on a big scale by co-locating teaching, research, small businesses, product-testing and production – all in a shared network of spaces.

You might imagine that this cutting-edge kind of academic-industrial enterprise would be housed in some glittering stainless steel pods designed by Norman Foster.

But the interesting point about it architecturally is that it will in fact be located in a disused 1930s tea factory. This tells us something important about architecture.

In the development of modern architecture from about a hundred years ago, the term "functionalism" was frequently used to describe its principles.

The idea was that the form of a building should derive directly from a study of the activities that were to take place there.

The American architect Louis Sullivan, famous for his pioneering high-rise office buildings in Chicago, summed up the philosophy in 1896 in a phrase which became famous – form follows function. An architect used the phrase in conversation with me only last week, in defending a poor building which he had designed.

CGI of how the wharf area could look
CGI of how the wharf area could look

But the fact is that the theory of architecture cannot be reduced to a simple slogan. It is far too complex. In a design competition, ten architects, responding to the same brief, would produce ten different designs, all of them designed to accommodate the same functions. They would all work.

The slogan really falls down when it comes to the conversion of old buildings to new uses.

This is something which we are increasingly being asked to do. Converting redundant buildings is an important part of the sustainability agenda – recycling existing resources rather than spending money on new ones.

It is often also surprisingly affordable and it maintains historical memory.

A few examples in Birmingham – a swimming baths can successfully be turned into a community centre. A gasworks can be turned into a church. One bank can successfully be turned into a pub, another into a bookshop.

There are very few old and redundant buildings which cannot be found an appropriate new use. This practice turns functionalism on its head. Instead of a space being designed to fit a function, the function adapts to fit the space.

There are also interesting non-functional consequences to this process.

Almost always, something of the character of the original use of the building remains, producing a sort of hybrid place.

Former Typhoo factory in Digbeth lit up at night
Former Typhoo factory in Digbeth lit up at night

Because many of the buildings converted to new uses are robust ex-industrial buildings from the 19th century or early 20th century, the inherited layers are often of a surprising rawness: worn brickwork surfaces internally where you might expect polite plaster; exposed cast-iron columns or steel stanchions.

These qualities are perceived as bringing a quality of rough authenticity to our smooth modernity.

Something similar, I think, happens with names and their meanings. I don't know who coined the name Northern Powerhouse, but it evokes the grittiness of Lancashire cotton mills and clogs on granite setts. In response, here we have the Midlands Engine – I suspect we are meant to think of Boulton and Watt, James Brindley and Telford.

STEAMhouse is part of the Midlands Engine, and is actually an acronym for science, technology, engineering, art and mathematics, but the evocation of the 18th century technology that created Birmingham is the same.

Coincidentally (perhaps) the name also includes the word TEA. The tea factory that STEAMhouse is going to occupy is part of the Typhoo works in Bordesley Street in Digbeth, in the Warwick Bar conservation area.

This is a big complex of locally listed buildings, owned by the Gooch Estate, mostly empty.

There are actually three buildings, built between 1929 and 1950. They were all designed by the local architect Harry Weedon, nationally famous for his Art Deco designs for Odeon cinemas.

High Street in Digbeth is benefiting from several new projects
High Street in Digbeth is benefiting from several new projects

The central and biggest of the three buildings is the planned location for STEAMhouse. It is slightly evocative of Odeon architecture, being a hybrid of Art Deco and neoclassical styles, but built in industrial blue engineering brick.

No architect has yet been appointed by BCU to design the conversion of the 93,000 square feet of floorspace which it is anticipated that STEAMhouse will occupy. I hope that the university will be enterprising in its choice, as this is an opportunity to make a distinctive and significant place when it is completed in 2018.

The Typhoo buildings are part of a street block of about three hectares or seven acres, which includes the canal basin where the tea arrived at the works from the London docks. It has an important location, close to the new HS2 terminal, and next to the Metro tram line which will go along High Street Deritend.

The street block also includes a lot of unbuilt space, currently surface car parks. I hope to see the Gooch Estate produce a comprehensive plan for the development of the whole block, to be catalysed by the introduction of hundreds of new occupants in the STEAMhouse enterprise in 2018.

At this important gateway to Digbeth, the challenge will be to achieve the appropriate density and diversity for a new part of Digbeth, without resorting to city centre-type building heights.

New buildings around the canal basin need be no taller than the Typhoo works in order to make a successful place.

Joe Holyoak is a Birmingham-based architect and urban designer