The National Housing Federation (NHF) has welcomed the Chancellor's announcement in the Pre-Budget Report that more money for new social homes will be brought forward, but has warned that the funding rules must be changed immediately.

The NHF, which represents England's housing associations, says that unless the money is used to pay the builders of new social homes higher grant rates the supply of new, affordable housing could dry up in 2009, which would have a devastating impact on the Government's housing targets.

Currently housing associations pay around 60% of the costs of building new social homes through raising cash from private lenders and selling homes on the private market - with government grants covering the remaining 40% cost.

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However, the credit crunch has badly hit the ability of associations both to raise money privately and sell homes on the open market. This means that, the new money that the Government is bringing forward to pay for the building of new social homes must be used for increased grants otherwise associations simply won’t be able to afford to build any homes in 2009 at all.

NHF Chief Executive David Orr said: "The Chancellor is to be commended for announcing that he is bringing forward the earmarked investment for new social homes.

"However, ministers must ensure that this money is used to increase grant rates to housing associations forthwith. Otherwise, the situation is so serious that associations simply won’t be able to build new social homes next year.

"This would be a catastrophe for the millions of people on waiting lists for affordable housing – and would only serve to compound our national housing crisis.

"With the economic downturn forcing private developers to build fewer and fewer homes, it would be a tragedy if we let housing association-led development grind to a halt too.

"The simple reality is that housing associations can no longer deliver homes using the financial model that has been so successful for so long."

(CD)