Rent to Buy is a new government scheme offering tenants subsidised rents to climb on the housing ladder that could threaten the buy to let market for landlords.
The government is offering builders up to £400 million at low rates to construct up to 10,000 new homes by 2018.
Half of the homes will be in London and the rest in major cities around the country.
Rents for the new homes will be restricted to 80% of local buy to let rents for a similar property for seven years.
At the end of the discount term, tenants will have first refusal to buy the home at a discount price as part of the Help to Buy scheme already available to first-time buyers.
Most of the properties will be one or two bed town houses or flats.
Communities’ secretary Erick Pickles said: “This government is standing by people who work hard and do the right thing and helping them move on and up in life.
“Both house building and the number of first-time buyers are now at their highest rate since 2007. But there is more to do. As part of our wider housing programme, this new scheme will help increase the provision of low-cost rented accommodation and provide a springboard for young people to upgrade to home ownership down the line.”
The government hopes the scheme will kick start home building and offer an alternative to young home buyers who cannot afford to save for a deposit.
The new scheme is launched at the same time as the Land Registry reports home prices in London have risen by an average 11% over the past year.
The target market for Rent to Buy is couples earning between £33,000 and £66,000 a year, although tenants will not face means testing to join the program.
“Through this exciting new fund we hope to provide thousands of brand new homes many years sooner than would otherwise be possible, and make them available to rent at below market rates for hardworking Londoners,” said the capital’s mayor Boris Johnson.