The chancellor has opened the way for a type of investment that he hopes will encourage more building and refurbishment of homes for private rent.
In his pre-Budget report on Wednesday, Gordon Brown pledged to consult on introducing investment vehicles that could provide a new stream of funding for housing associations to develop and refurbish such homes.

He will issue a consultation paper on low tax trusts that invest in rented housing in time for the Budget in April 2004. The trusts were recommended in economist Kate Baker's review of housing supply for the Treasury, also released on Wednesday.

The trusts, which exist in all G7 countries apart from Britain, are used to make investing in property more attractive for investment institutions, such as pension funds, and individuals.

In the USA the trusts, known as real estate investment trusts, have pumped £20.2bn into the property market. Under one model, the investors pay tax on the income they get from the trust, but the trust gets tax breaks on the profit it makes, thus maximising the amount it can pay its investors.

Speaking exclusively to Housing Today, Barker said: "It is clearly a reform that will go in the direction that I want to take the market, where people are less driven into owner-occupation at an early stage because they are afraid they will miss out on capital gains. It will result in a better private rented sector with more choice."

It is a reform that will go in the direction that I want to take the market

Kate Barker, author, Barker review

Lord Richard Best, chief executive of the Joseph Rowntree Foundation, said associations could build new homes backed by money from the trusts. He added the JRF hoped to use the vehicle for developments of below-market rent apartments for professionals in cities, built without subsidy.

He said: "Hopefully [the trusts] would tap into a new and different source of finance for housing that we have missed out on for so long.

"It may need associations to be developers, since they know about building rented housing. Most housebuilders haven't produced products for rent since the 1930s and haven't been so active in the inner cities. I think there is a huge market for this."

Source

Housing Today

Postscript

The chancellor announced £340m extra funding for councils next year but reserved the right to cap council tax rises.

The Local Government Association said the cash might not be enough to prevent council tax increases.