The Department for Education-commissioned report into the fostering system highlights a raft of challenges facing the sector and will help inform the government's national fostering stocktake.
Among the problems raised is a failure of government policy to tackle a lack of high-quality foster carers.
This is a particular concern as the fostering sector, which is largely made up of people over the age of 50, is losing experienced carers through retirement.
The lack of high-quality carers also means the sector is struggling to support children and young people with complex needs, as well as older children and those with behavioural issues.
"One of the biggest, if not the biggest, issue in fostering is how to secure the future recruitment and retention of enough high-quality foster carers," the report states.
"There is no clear policy on how this is going to be achieved."
The report, which is based on academic research as well as interviews with council and independent foster care representatives, also warns that a funding crisis is looming in children's foster care as councils are struggling to continue protecting budgets.
"At the present time the sector is struggling under pressure to improve outcomes for children whilst also experiencing huge financial pressures," the report states.
"In the face of the budgetary cuts in the years that followed the 2008 financial crisis local authorities have protected spending in this area, but in the interviews they reported that is now becoming unsustainable."
Another emerging problem is concerns from carers around the quality of support on offer from social workers, which is further undermining recruitment and retention.
"Research has highlighted the importance of support in retaining carers, based on a combination of regular social work support, a package of relevant training, opportunities for contact with other carers and adequate remuneration," the report states.
The report points out that foster carers in the independent sector feel better supported than those in councils.
Problems around commissioning are also highlighted in the report, with concerns raised that council commissioners lack expertise and are making placement decisions based around financial constraints rather than the best needs of children.
The national fostering stocktake is being overseen by former government adviser Sir Martin Narey and was announced in the Putting Children First white paper last year.
It aims to look in detail at the state of fostering in England and investigate ways it can be improved, with its findings due to be published in December.
Its gathering of information has included a consultation that ran from April to June, in which the National Association of Fostering Providers, which represents independent foster care providers, also highlighted concerns that commissioning is failing to take into account the best needs of children.