As many as 10,000 new homes could be built in England as Theresa May announced that a strict cap on the amount councils can borrow will be lifted.
The move, which town halls hope will help weaken the grip of private developers on the housing market, was revealed during the Prime Minister’s speech at party conference on Wednesday.
Local authorities have long been calling for the government to lift constraints on their finances – a move the Treasury has resisted until now.
But speaking to Conservative members in Birmingham, May admitted the cap had been holding councils back.
The news will mean that local authorities and housing associations can borrow against their assets to fund new affordable homes, in a boost for millions of people aiming to get a foot on the housing ladder.
The Local Government Association said it meant councils can “resume their historic role as a major builder of affordable homes”.
The announcement will unlock the £2bn government fund for social and affordable housing which May revealed earlier in the year.
It follows a decision by the government to drop a policy to force councils to sell off homes.
“Solving the housing crisis is the biggest domestic policy challenge of our generation,” May said.
“It doesn’t make sense to stop councils from playing their part in solving it.
“So, today I can announce that we are scrapping that cap.
“We will help you get on the housing ladder and we will build the homes this country needs.”
It comes as experts say 300,000 homes each year are needed to meet demand, and as private developers were failing to build enough.
Lord Porter, chairman of the Local Government Association, said: “Our national housing shortage is one of the most pressing issues we face and it is clear that only an increase of all types of housing – including those for affordable or social rent – will solve the housing crisis.
“The last time this country built homes at the scale that we need now was in the 1970s, when councils built more than 40% of them.
“Councils were trusted to get on and build homes that their communities needed, and they delivered, and it is great that they are being given the chance to do so again.”
May also used her conference speech to signal austerity was coming to an end.
“Sound finances are essential, but they are not the limit of our ambition,” she said
“Because you made sacrifices, there are better days ahead.
“So, when we’ve secured a good Brexit deal for Britain, at the Spending Review next year we will set out our approach for the future.
“Debt as a share of the economy will continue to go down, support for public services will go up.
“Because, a decade after the financial crash, people need to know that the austerity it led to is over and that their hard work has paid off.”