A potential solution to the affordable housing crisis threatening to undermine Brighton and Hove's economy will be unveiled on Budget Day.

Chancellor Gordon Brown is expected to reveal more details about plans to allow people to invest in residential property through special property investment trusts.

Some experts believe the proposed legislation could flood the property market with buy-to-let homes, forcing private rental prices down.

Others predict the millions of pounds drawn into the country from offshore funds will lead to a boom in property development, further easing pressure on housing demand.

Behind the proposals are Real Estate Investment Trusts (REITs) which, because of various tax exemptions, are likely to be attractive to investors.

Property companies can become REITs for a one-off payment and be exempt from corporation tax and capital gains tax on residential property.

Under the scheme, REITs will not have to pay any tax on the revenue they pass on to their investors.

They will effectively allow investors to take a stake in the property sector without actually buying property themselves.

Brighton and Hove has one of the highest percentages of private rented accommodation in the country. And it is one of the most expensive cities to live in.

The cost of living is forcing low-paid workers out of the city and making it difficult for hotel, catering and leisure businesses to recruit.

Tony Mernagh, from Brighton City Centre Business Forum, said: "The chancellor has not committed himself to anything yet but if REITs operate as they do in other countries, they will draw a lot of cash back into the country from offshore accounts. If that is used, even in part, for residential developments it could have a big impact on housing supply.

"Any addition to that supply will be welcomed in Brighton and Hove where our housing problem is without doubt the greatest challenge we face."

But Mark Froud, Sussex Entreprise chief executive, said: "In areas where existing housing is dense and where there are land and property constraints, such as Brighton, the impact of REITs on solving the affordable housing issue may be limited."

REITs have had a massive impact on the property market in other countries.

In the past 15 years, the value of the North American property market has increased from £5 billion to £100 billion. The Australian sector has expanded from £2.5 billion to £25 billion.

Monday March 08, 2004