Ministers are studying plans to boost housebuilding by lending publicly owned land to developers and relaxing requirements for building schemes to include social housing.
The recommendations are expected to be made in a report by Sir Adrian Montague, the businessman who has acted as an adviser to successive governments. Montague was asked to study how to tackle the chronic housing shortage, especially in the private rental sector, and the urgent need to revive the construction sector and boost employment.
Under the changes, the government and local authorities would “invest” land they own with private developers or housing associations, which say they can raise money to build homes but cannot afford to buy land as well.
The state would be repaid when the completed developments were sold to institutions such as pension funds, which have indicated they want steady income from rents but cannot take the risk of development or wait for their pay-back during the building phase.
To further encourage developers, councils could be urged to relax requirements for developers to build social as well as private housing; in return, they would have to agree that the rented homes could not be sold privately for a minimum period.
The report, commissioned in February and expected to be published within weeks, may also call on the government to provide seed funding and set up a task-force to get early projects off the ground.
The British Property Federation, representing developers, has likened this potential revolution in private rental developments to the boom in privately owned student accommodation blocks, which has gone from nothing to a £20bn industry in two decades.
“If the review could unleash a couple of billion a year to help build homes … that would make a useful contribution to housing supply and those needing to rent,” said Liz Peace, the federation’s chief executive.
Some experts believe total spending could reach £40bn in a decade if the UK matches the levels of institutional investment in this sector of other parts of western Europe and the US.
A spokesman for the Department for Communities and Local Government, which oversees housing, said: “The private rented sector plays an essential role in the housing market, offering flexibility and choice to people, and supporting economic growth and access to jobs. To boost supply and choice, we want to encourage greater institutional investment into the sector, and in due course we will be publishing our response to the Montague review.”
Montague is non-executive chairman of companies including 3i, Michael Page International and Anglian Water Group. He is also deputy chair of the UK Green Investment Bank.
When his review was launched last year he said he wanted to “help remove barriers to investment, contributing to the continuing health of a sector that millions of people rely on”.
The Montague report will follow two reports this week into boosting private rented housing, and a third from Labour on reducing rents and improving standards in the sector.
The Resolution Foundation, a thinktank supporting low- to middle-income households, makes similar recommendations to those thought to be favoured by Montague, but prefers a bigger role for housing associations to build private rented homes, in order to avoid a conflict with the continuing need for social housing.
“There are 11 million people in the low- to middle-income group: for a lot of those people ownership isn’t on the cards for the medium term,” said Vidhya Alakeson of the foundation. “This is an opportunity to create a different product that’s better quality because it’s professionally managed, [and] offers a longer-term home for people raising children in the rented sector.”
The Investment Property Forum has reported that if the government cut VAT on repairs and management fees and reduced demands for social housing, institutional property investors could invest £2.6bn-£2.7bn in three years, “which, with careful nurture by government, can deliver significant new stock”.