A housing association has said it is difficult to make the private rented sector work in London.

The Notting Hill Housing Group was to have made a development of 36 homes in Tower Hamlets available for private rental at market prices.

It has now switched all the units to shared ownership. It said that private rents have stood still in the borough, but build costs had gone up 25% and sales values up 19%.

The housing association – the biggest to venture into the private rented sector with 635 units so far and plans for 2,000 by 2018 – will now review other build-to-rent projects to see if they stack up.

Kate Davies, chief executive of Notting Hill, said: “We have found that one particular scheme, due to rising sale prices and build costs against static rents, will not now pass our appraisal criteria.

‘We have therefore decided to market this particular scheme as shared ownership, and will review other build to rent schemes in due course.

“Notting Hill is positive about growing our market rent business, despite it being difficult to procure stock in London at the right price.”