Rachel Reeves will nearly double government spending on affordable housing on Wednesday, providing a major boost to the housebuilding sector and bringing the government’s housing targets a step closer.
The chancellor will announce nearly £40bn worth of grants to be spent over 10 years for local authorities, private developers and housing associations – a major increase on the previous programme.
She will also allow social landlords to raise rents by 1 percentage point above inflation for the same period, another key demand of housing providers.
The announcement, which the chancellor will make during her long-awaited spending review, will make Angela Rayner and her housing department one of the biggest winners of the drawn-out departmental negotiation process.
It is part of a £113bn increase in capital spending across the country, which Reeves will pay for with extra borrowing after changing the government’s fiscal rules earlier this year.
Reeves is expected to tell MPs: “This government is renewing Britain, but I know too many people in too many parts of the country are yet to feel it.
“This government’s task – my task – and the purpose of this spending review is to change that. To ensure that renewal is felt in people’s everyday lives, their jobs, their communities.”
A government source added: “We’re turning the tide against the unacceptable housing crisis in this country with the biggest boost to social and affordable housing investment in a generation, delivering on our commitment to get Britain building.”
The boost for affordable housing comes after protracted and occasionally fraught negotiations between Rayner and Reeves, which ended over the weekend just days before the review was due to be announced.
The announcement will enable the chancellor to promise a generational shift in government investment, as she looks to turn the page on a difficult few weeks during which she has done a U-turn on cutting winter fuel payments for millions of pensioners and unemployment reached its highest level in nearly four years.
The housing announcement will come alongside an extra £15.6bn for local transport projects and £14.2bn to build a new nuclear power plant at Sizewell C.
Rayner was the penultimate cabinet minister to reach agreement with the Treasury, followed on Monday by the home secretary, Yvette Cooper, who is reported to have accepted a settlement that could mean a cut to police numbers.
Cooper, Rayner and the energy secretary, Ed Miliband, have all endured difficult talks with the Treasury over the past few weeks as Reeves looks to limit departmental spending to just 1.2% above inflation.
Miliband was reported to have stormed out of talks with Reeves’s deputy, Darren Jones, who conducted the bulk of the negotiations, while Rayner is said to have insisted on speaking directly to the chancellor.
Rayner’s settlement fulfils her demand for a major boost to affordable housing funding, after warnings she would miss the 1.5m homes target this parliament without it. A recent Savills report warned that ministers were further away from hitting that target than they previously admitted.
Reeves will announce on Wednesday that she will allocate £39bn to the affordable homes programme for 10 years from 2026-36, to be paid for by the extra capital spending she has freed up by changing the government’s borrowing rules.
That money represents a major uplift on the funding provided by the previous government, which allocated £11.8bn for the programme over a five-year period.
Reeves will also announce a decade’s worth of social rent increases, alongside a consultation on how to ensure that the cheapest rents rise to meet the most expensive ones.
The extra money will help housing associations buy up thousands of new units that have already been built by private developers as part of their affordable housing commitments, but which are sitting empty because associations cannot afford them.
Kate Henderson, the chief executive of the National Housing Federation, which represents housing associations, called it “the most ambitious affordable homes programme in decades”.
She added: “This is a transformational package for social housing and will deliver the right conditions for a decade of renewal and growth.”
Mairi MacRae, director of campaigns and policy at Shelter, said: “This increased investment is a watershed moment in tackling the housing emergency. It’s a huge opportunity to reverse decades of neglect and start a bold new chapter for housing in this country.”
The announcement will come a day after the government’s planning bill passed its third reading in the Commons, another major plank of the government’s efforts to reach the 1.5m target.
Ministers say the changes to the planning regime, which will make it easier for developers to build on previously protected sites, are essential for easing Britain’s housing crisis. However, environmental campaigners say they will put thousands of sensitive natural habitats at risk.
The Guardian revealed on Tuesday that several Labour MPs asked the Treasury to intervene to protect the changes after becoming worried that the housing department would cave in to the demands of some backbenchers for stricter environmental protections.
Meanwhile, Rayner has also announced she will repeal a 200-year-old law that criminalises rough sleeping, a move that campaigners said could prevent hundreds of people being arrested for being homeless.
The housing secretary said she would remove the Vagrancy Act of 1824 from the statute book within a year, making it impossible for law enforcement officers to arrest people purely for sleeping on the streets.
