The Midlands' biggest housing association may cut its building programme by up to 80% following the cuts announced in last month's Comprehensive Spending Review.
Midland Heart, which runs 32,000 homes across central England, said it would be severely affected by the reduction of the social housing budget from £8.4bn to £4.5bn for 2011 to 2014.
Chief executive Tom Murtha told the Birmingham Post it was inevitable the housing association would have to scale back its capital programme.
He said: “We are certainly planning a major reduction in our capital programme that will see our current output of 500 homes a year reduced to 100.”
The Government plans to build 150,000 social homes in this parliament, by changing rent rules. However, Murtha disagrees with the policy.
He said: “Funding for new building has traditionally come from a capital grant. The social housing grant is a subsidy that helps towards the cost of everything from acquiring land to building out the scheme and would account for between 40% and 50% of the cost with the rest borrowed from the banks. A subsidy has been the only way to create social housing.
“The Government has tried to offset this by allowing housing associations to increase rents to a maximum of 80% of the market rate, the argument being that if you can bring in more rental income then you can borrow more and will need less capital grant.
"However, if you look at the figures then it is a calculation that only really works in London. It would seem the Minister has done work with London-based organisations because further north where there is not a huge gap between rent levels, the opportunity to raise revenue is just not there.”
Midland Heart has spent around £100m on construction projects over the last three years, and currently has 500 homes on site.