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Insurer Legal & General has decided against investing hundreds of millions of pounds into building new homes for rent because of the government鈥檚 failure to guarantee rent levels.

Last summer the insurance and pensions giant was seen as one of the frontrunners to take part in the government鈥檚 private rented sector initiative (PRSI), but is now thought to have gone cold on the idea for the moment.

The news comes as four other groups 鈥� Aviva with CBRE, Aegon, Grainger, and a group of private investors led by property entrepreneur Charles Fairhurst 鈥� are readying plans to set up funds worth anything up to 拢5bn.

After publishing a consultation into PRSI last summer, the Treasury decided against guaranteeing a minimum return.

Instead, applicants are likely to receive preferential access to publicly held land to start their schemes. L&G is thought to have decided not to invest as a consequence of these changes.

the private rented sector initiative will see at least 拢5bn invested in rented housing

sir bob kerslake, HCA

L&G said in a statement that it had 鈥渁lways been supportive of government initiatives for the private rental sector鈥�, but declined to say if it would bid.

It is thought some of the other four frontrunners will set out their initial intentions at Mipim, the annual property exhibition in Cannes, next week.

Sir Bob Kerslake, chief executive of the Homes and Communities Agency, which is leading the initiative, said last week that PRSI would lead to 鈥渁t least 拢5bn鈥� invested in rented housing.

The HCA will unveil six sites in London for trialling the PRSI at Mipim. These are: Newington Butts in Southwark; East India Dock Quay in Tower Hamlets; Mildmay hospital in Hackney; Greenwich hospital; the Queen Elizabeth and St Clement鈥檚 hospitals in Tower Hamlets.