The government has lifted its long-standing embargo on council house building as part of this week’s package to increase housing supply.

The government’s response to the Barker review says that council arm’s length management organisations will be free to use their own resources, including land, to build their own homes.

It says it wants to find ways of allowing top-performing council housing departments to provide social rented properties.

It also encourages councils procuring new social housing through the PFI to build more housing for sale and shared ownership to help cross-subsidise the affordable units.

The government also pledged to devote more money to social housing in the 2007 spending review. The assurance is significant at a time when the Treasury is scaling back on its spending commitments.

Sarah Webb, Chartered Institute of Housing policy director, warmly welcomed the freedom for councils to build.

But Geoff Zitron, Tribal HCS director, said that in most cases it would still remain more cost-effective for councils to use housing associations rather than build housing themselves.

He added that the tweak to the housing PFI could kick-start the faltering initiative. “This is more attractive to the market because the private sector will have more control of the risks.”