It said the Rent to Own scheme would enable first-time buyers onto the housing ladder by allowing them to build up a share in their home through renting.
The announcement forms part of the party’s plans to deliver 300,000 homes each year.
Under the scheme, first-time buyers will build up a share in their home through monthly payments equivalent to rent, until they own the property outright after 30 years.
Homes would be delivered through housing associations and other providers where monthly payments are no higher than the market rent.
Liberal Democrat leader and deputy prime minister Nick Clegg said: “For working young people the dream of home ownership is increasingly out of reach.
“Prices are so high renters cannot afford to save for a deposit, which means they can never take that first step onto the housing ladder,” he said.
“Young people deserve better. Rent to Own will mean, regardless of their background and family circumstance, they will be able to make this a dream a reality.
Campbell Robb, Shelter’s chief executive, praised the party’s plans to address the UK’s housing shortage but warned that only “a comprehensive plan” would help to reach the needed target.
“Private renters are bearing the brunt of this crisis, and so we welcome a scheme that will allow some renters the chance to benefit from the stability that owning a home can bring.”
Robb added: “But the elephant in the room for all parties is something that will actually deliver the 250,000 homes we need each year. Schemes like this are a start, but to fix the housing shortage once and for all we need a comprehensive plan, not just piecemeal policies. Only this will deliver the genuinely affordable homes we need and bring down the cost of housing for the long term.”
