The target to build three million homes by 2020 is looking ambitious and the National Housing Federation believes it cannot be achieved before 2029. In a move to speed up the rate of building, it is now proposed that the barriers that deter councils from building new houses should be removed.

Currently councils are not encouraged to build new homes as some of the rental income from new build homes is pooled nationally and distributed to other councils through the Housing Revenue Account Subsidy System. Also 75 per cent of the capital receipts from any council home sold under the Right to Buy is currently pooled nationally to reflect the historic investment in council house building.

Communities and Local Government now wants views on a proposal to allow councils to keep all the rental income from any homes they build, as well as to keep the receipts from any of those homes which are later sold through Right to Buy.

Housing Minister Margaret Beckett said she wanted local authorities to play a bigger role in the delivery of council housing and invited councils interested in building more homes to discuss their ideas with the Homes and Communities Agency. She said: “We are determined to help keep house building going in the current climate, as the long term need for more homes is not going to disappear. These new freedoms will encourage councils to play a bigger role in driving forward the delivery of new affordable homes for families in housing need.”

Following an earlier decision, councils will be invited to bid for a share of the capital grant given to social landlords to subsidise the cost of new housing. The new financial rules will make it possible for councils to compete for this funding alongside other providers of social housing such as registered social landlords.

Consultation on the proposal ends on 17 April 2009.