Plans were announced today to encourage pension funds to invest in the private rental sector in a bid to help boost the housing market.

The Homes and Communities Agency (HCA) is calling for interested parties to contact it, with a view to developing a long-term funding model that would enable investors to put money into rental properties on a large scale for the first time.

Around eight organisations are understood to have been in talks with the HCA about the scheme, including two housing associations and at least one large pension fund.

It is hoped that the move would help to kick start stalled building developments and provide some support to the beleaguered housebuilding industry during the current downturn.

The HCA said the initiative would also form a key part of a package of proposals the Government will be announcing in its response to the Rugg Review of the private rented sector.

Sir Bob Kerslake, chief executive of the HCA, said: "Our initiative is one of many innovations we have used to attract new investment, kick start stalled housing schemes and mitigate against the effects of the market downturn.

"To date, achieving scale has been one of the main barriers to attracting institutional investors into the housing sector.

"We believe there is an opportunity now for the HCA to work with developers and housebuilders to offer a pipeline of projects for the private rented sector initiative, which could result in a positive outcome for all stakeholders."

The main focus of the initiative will be on building new homes to rent, but it may also include some recently built properties.

The British Property Federation welcomed the initiative, but it called for changes to be made to stamp duty to encourage large investors.

Liz Peace, chief executive of the British Property Federation, said: "This paves the way for a new kind of private renting that could support new development as the housing market recovers and offer the public real quality and choice in private renting, at little or no cost to the taxpayer.

"The task now is to stimulate interest in the HCA's proposals, encourage some innovative bids and ensure that we create some attractive proposals that provide solid returns for investors and more importantly, tenants."

David Cowans, Group Chief Executive of Places for People, said: “This is an encouraging move. Places for people have been offering market rent since 1999 and is keen to see growth in the sector.

“Such a move has clear benefits for the private rented sector, which we believe has a crucial role to play in the UK’s future housing supply. A robust private rented sector can provide quality accommodation, to a sizeable and growing section of the population, who are unlikely to have the resources to afford their own home. yet are not eligible for state subsidised housing.

“In encouraging institutional investment, we believe the residential sector would not only be able to offer greater long-term sustainable returns for investors, but also greater consistency, quality and management of stock in the private rented sector.

"Furthermore it would support broader housing objectives around kick-starting housing production and deliver longer-term value in the places we create and manage."