The consultants argue that some of the worst estates will not attract private finance unless big concessions are offered to investors. They suggest investors may need to take security against authority's best housing stock and be given long-term repayment holidays on transferred stock.
Lenders have welcomed the report, Investing in Urban Housing, published by the Joseph Rowntree Foundation.
But the department of environment has rejected the lenders' views, and absolutely ruled out stock substitution as loan security, or deferred payment for sold housing stock.
'I don't see any reason why lenders should be afraid of local authority controlled housing companies,' he said.