First-time house buyers lose out under proposals to solve rental shortage

Montague report contains controversial trade-off between rentals and affordable homes

Developers who agree to build homes that can be rented out by private landlords should be freed from the obligation to provide "affordable" homes for sale, a report out today suggests.

The trade-off between rented accommodation and affordable homes is the most controversial of several recommendations to come out of a government-commissioned study, headed by Sir Adrian Montague, chairman of the equity firm 3i, into ways to overcome a shortage of homes for rent.

It received a mixed reception from housing pressure groups, who want to see more places on the market that potential tenants can rent, but said that young couples struggling to get a foot on the home ownership ladder should not have to suffer as a result.

David Orr, head of the National Housing Federation, which represents housing associations, said: "We absolutely support the Montague report's call for more investment in rented housing. That said, it is important to plan positively for housing growth which meets the needs of the whole local community. With 1.8 million households on housing waiting lists, the delivery of market rented homes shouldn't be at the expense of affordable homes."

Lord Whitty, chairman of the Housing Voice pressure group, said: "It's highly desirable to get more private rented accommodation being invested in by large scale investors. However, if the price of doing that is to end the obligation on developers to provide affordable accommodation, then it will have a negative effect on the prospects of lower and middle income groups."

Currently, local councils which grant developers permission to build housing estates add conditions that include providing a proportion of "affordable" homes. But the Montague report suggests that developers be given the alternative of building homes with binding agreements ensuring they are available for rent for a minimum period of up to 21 years.

Small-scale landlords provide the vast majority of homes for rent in Britain, apart from student accommodation. Only one landlord in 100 owns more than 10 homes, and big investors are shy of putting their money into this sector because no one wants to risk being the "first mover", Sir Montague reported.

Other recommendations include releasing more government-owned land for development on condition that a proportion of the homes built are for rent.