The Barker Review, commissioned chancellor Gordon Brown and deputy prime minister John Prescott, concluded that "given the benefits that may result from greater institutional investment, and the role REITs play in other countries' housing economies, there may be merit in the government looking at ways to promote greater interaction between institutional investors and the residential property market".
The report by Kate Barker of the Bank of England's Monetary Policy Committee concluded that direct institutional investment in residential property is low. It added that institutions in other countries typically invest through tax-transparent property investment vehicles, such as REITs in the US.
Institutions told the review that greater investment could be encouraged through tax changes. They argued that REITS could help improve the quality of private rented stock through greater investment, increase the willingness of housebuilders to build more of the type of units favoured by investors and contribute to greater stability in the housing market as institutional investors are less reliant on debt financing and less vulnerable to interest rate changes.
The report also noted that an additional 145,000 homes a year would need to be built to lower real house price inflation to the European average of 1.1%, and an extra 240,000 would lower it to zero. Planning changes would also be needed to encourage development on brownfield sites.
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