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The government will today ask firms to bid to set up a private sector fund to invest in new build housing for rent.

The Homes and Communities Agency is to publish a document outlining its plans and asking for expressions of interest from financial institutions interested in funding housing for private rent.

The document will say the government is considering a range of options to encourage institutional investment in rental property, including guarantees to step in if too many homes are left un-let to tenants.

The move is seen as one way to encourage the construction of new homes during the housing market downturn, when homes are difficult to sell.

Homes and Communities Agency chief executive Sir Bob Kerslake said the point of the exercise was to see how much genuine interest there was from institutions in investing, following lengthy discussions over the topic. He said: 鈥淲e need to see how much they鈥檙e prepared to invest. The fund needs to be of a reasonable scale 鈥� hundreds of millions of pounds 鈥� to be worthwhile.

Kerslake said any investors would benefit not only from the possibility of 鈥渧oid guarantees鈥� 鈥� an assurance the HCA will step in if the proportion of un-let properties in a development rises above a certain level 鈥� but also the possibility of investing in sites the HCA is involved with.

He added this would most likely be on private sector sites where development had stalled because of the collapse in the market for private sale properties.

The move is backed by the property industry, which has been lobbying on the issue for some time. However, the British Property Federation has also said the move maybe stymied by chancellor Alistair Darling鈥檚 refusal to reform stamp duty rules in last week鈥檚 budget to make them more attractive for bulk investors in housing.

Kerslake conceded that if the private sector was not interested in the consultation because of the stamp duty impasse, the issue 鈥渨ill become a matter for the chancellor to consider. Until we test the market we just won鈥檛 know.鈥�

Liz Peace, chief executive of the British Property Federation, said the move potentially paved the way for a new kind of private renting that could support new development. She said: "The task now is to stimulate interest in the HCA鈥檚 proposals, encourage some innovative bids and ensure that we create some attractive proposals that provide solid returns for investors and more importantly, tenants.鈥�