Deputy prime minister John Prescott’s plan to provide homes for £60,000 each could be boosted by the use of private capital to pay for infrastructure such as roads and sewerage

The Housing Corporation and the Greater London Authority are considering creating a financial vehicle that would attract money from investment sources such as pension funds.

This could solve a key problem with the £60,000 scheme, which does not appear to make any provision for paying for the infrastructure bill.

The Housing Corporation’s director of investment for London, Steve Douglas, said that using private capital had first been considered by the corporation and the GLA for key-worker housing in the London-Wide Initiative, one of the programmes that could find a place in the £60,000 home scheme.

He said: “The idea is to get institutions such as pension funds to take a return over a longer period, say 30 years. There is potential to roll out the model across a portfolio of sites.”

The idea is to get institutions to take a return over a longer period

Steve Douglas, Housing Corporation

Under the Prescott proposal as it stands, a housebuyer would receive his or her initial stake plus a percentage of the rise in the value of the house when it was sold. The rest of the money would be returned to a land investment fund run by English Partnerships and the Housing Corporation.

Livingstone is also understood to have struck a deal with Prescott to use land owned by Transport for London and the London Development Agency to deliver up to 50,000 cheap homes in the capital. The London version would be identical to the Prescott scheme except the buyer’s initial stake would be £120,000.