Comment

The focus last week was on the barker report on housing supply, but the chancellor's pre-Budget report was also notable for its emphasis on the need for a vigorous private rented sector. Private rented housing is a flexible form of tenure: it can contribute to labour market mobility, improves choice and is increasingly in demand from single-person households and students. Yet its share of the UK housing market, about 10%, is low compared to other European Union countries and the USA. In Germany, for example, nearly half of all households rent privately; in France, the sector makes up more than a fifth of the market.

The problem is as much one of demand as supply. The UK sector has been squeezed between the development of a large, subsidised social rented sector and a culture that has established homeownership as the tenure of choice through a history of favourable tax treatment, significant capital gains and policies such as the right to buy. Renting privately is seen as a second-best, lower-quality alternative; negative images of the sector abound, not least because about half of private sector dwellings were still classified non-decent in 2001, while a recent report by Shelter highlighted problems faced by tenants when landlords unreasonably withhold deposits. So it is perhaps not surprising that nine in 10 people aspire instead to homeownership.

Despite this, last week's pre-Budget report made clear that the government believes there is scope for the private rented sector to make a bigger contribution to meeting housing needs. The strength of the sector in Europe illustrates the potential for an expanded UK sector – in the right circumstances, it can be attractive to many people and of real benefit to the economy.

But it is clear that turning private renting into a cost-effective, viable and desirable alternative to owner-occupation and social housing will require a transformation in attitudes and policies. It's a large, challenging agenda, with important economic and social consequences. Part of the Barker review involves considering how we can encourage a strong private rented sector that will maintain its stock and support greater supply. Its interim report made clear that some of the industry's problems reflect a low level of institutional investment, with the vast majority of landlords managing only a handful of homes.

Turning private renting into a viable alternative will require a transformation in attitudes and policies

The pre-Budget report set out how the government is considering fiscal and other measures to encourage a stronger, better private rented sector (HT 12 December, page 8). In particular, the introduction of real estate investment trusts gives the property industry the opportunity to expand the sector and raise standards. Some housing associations are already active in this sector and, with their skills and experience, are clearly well-placed to play a greater role, should they choose to.

A proper balance between flexibility and regulation must be struck. The Housing Bill sets out a way forward, with targeted measures to raise quality, especially of management, in some of the worst parts of the private rented sector. There, the most vulnerable members of society frequently bear the brunt of some of the poorest conditions and services. The government is also considering the case for a mandatory tenancy deposit scheme in the light of the Law Commission's Renting Homes report.