Housing Minister Grant Shapps announced that the government will match the council tax raised from new homes for the first six years through the New Homes Bonus. Local authorities and communities will work together to decide how to spend the extra funding, he said. They could use it either to reduce council or improve services.
Despite strong demand for housing, new building has consistently fallen over the last decade. On average 26,000 fewer homes were built each year from 1997 to 2009, and in 2009 there were just 118,000 completions, the lowest level of house building in peacetime since 1924.
He said: "We are ending the system where the Government can tell communities what and where to build - that top-down approach slowed housebuilding to a trickle, so we need to take action now to get the country building again. That's why we've set aside almost £1bn so councils who build more homes start benefiting immediately from the extra cash, which they can spend on improving the local area.
"For too long communities have fought against development because they can't see how it does anything to improve their lives. I'm determined to change this. The New Homes Bonus will ensure that those communities that go for growth reap the benefits of development, not just the costs.
"Councillors will now be able to lead a mature debate about the benefits of development. And rather than being punished for not meeting targets, local communities will now have a reason to say yes to new homes, because they will benefit from better local services, or perhaps the redevelopment of their town centre in return for backing new housing."
The proposal was unsurprisingly welcomed by housebuilders. Stewart Baseley, executive chairman of the Home Builders Federation, said: "The country is facing an acute housing crisis and it is imperative we have a planning system that delivers sufficient land for the homes we need. The New Homes Bonus is an essential part of the new incentive based structure and we welcome the commitment to a simple, easy to understand system."
Councils will benefit from a higher level of funding for encouraging new affordable homes to be built in the local area, with council tax matched and then supplemented by £350 per home each year for six years.
Consultation on the New Homes Bonus seeks views on how the scheme would be implemented. A copy of the proposal is at www.communities.gov.uk/publications/housing/newhomesbonusconsult.