The £5bn will be used to build 25,000 homes, as the government aims to tackle the housing shortage.
Made up of money already set aside for housing, the funds will provide short-term loans to businesses in an effort to encourage new homebuilders into the market.
There are plans in place to develop abandoned shopping centres into new communities and attempts to develop derelict land.
The fund will help build 25,000 new homes by 2020 and up to 225,000 in the longer term.
A plan to use public land will enable the building of a further 15,000 in the same period.
The announcement comes on the second day of the Conservative Party’s annual conference.
Gavin Barwell has already been speaking at the Fringe event hosted by SHOUT and Bright Blue, saying that council housebuilding would only drive inequality.
Unveiling the new plans, chancellor Philip Hammond said: “There has been a housing shortage in this country for decades, and the government is determined to take action to tackle it.
“We’ll use all the tools at our disposal to accelerate house building and ensure that over time, housing becomes more affordable.”
Sajid Javid, secretary of state for communities and local government, said: “We want to ensure everyone has a safe and secure place to live. That means we’ve got to build more homes.
“It is only by building more houses that we will alleviate the financial burden on those who are struggling to manage.”
One senior housing chief executive told 24housing: “Clearly where we build has to be on the agenda and we can no longer think about this in simplistic terms. Greenbelt is a sensitive issue. But large-scale housing will have to be built somewhere, particularly in the South East. The NHF conference rightly highlighted housing in rural communities. That’s often greenbelt land.”
Earlier this year, leading developer Sir Stuart Lipton told 24housing a new approach was needed: “We have to start looking at greenbelt in a very selective way so that primary greenbelt is preserved as sacrosanct. But there’s a lot of tertiary land that is available that isn’t greenbelt at all.
“Of course we should use more brownbelt sites but if it’s next to a railway line that isn’t suitable in the 21st century. All the pressure is on every site in town. My test is ‘would I like to live there?’ People should look further than just using every piece of land. Brownfield that was used for infrastructure could be reintroduced as greenbelt.”
Responding to the announcements, Campbell Robb, Shelter’s chief executive, said: “With millions of families priced out and feeling left behind by our housing shortage, it’s good to see the new government recognising that this is one of the nation’s most pressing issues.
“The increased funding going to smaller builders announced today is welcome, and correctly acknowledges that a few major developers cannot build all the homes we need by themselves.
“We hope this is a precursor to an ambitious home building programme in the autumn spending review and we will be looking closely for reassurance that the homes built will be genuinely affordable for people on low and middle incomes.”
Gavin Smart, deputy chief executive of the Chartered Institute of Housing, said: “It is encouraging to see both the Chancellor and the Secretary of State for Communities and Local Government recognise that we need to build far more homes to meet housing need.
“The key now will be in the detail and the biggest challenge will be making sure that the investment supports new, affordable homes of all types.
“Though boosting home ownership is something we support, many people are unable to get onto the property market and are left with no option but to rent in the private sector.
“We need more homes for rent and sale that people of all incomes can afford and it is crucial the government ensures that this extra investment, and the new momentum created by it, achieve this.”
Lord Porter, chairman of the Local Government Association said: “Housebuilding is well below the levels required to solve our housing crisis. The private sector clearly has an important role to play but it cannot build the homes we need on its own and government measures announced today to create a resurgence of SME builders are an important step towards increasing the private sector’s output.
“Councils also support moves to bring forward wider packages of public land that can boost development but must remain able to manage their assets locally as they are best-placed to secure the best deal for local taxpayers.
“It is important for government to recognise that planning is not a barrier to housebuilding. Councils are approving nine in 10 planning applications yet our recent analysis also shows there are hundreds of thousands of homes with planning permission which are still waiting to be built.
“Tackling this growing housing backlog must be a priority and councils need more powers to encourage developers to build homes more quickly. Allowing councils to set planning fees locally would also allow them to cover costs and continue to develop a proactive planning approach for unlocking housing growth.
“A renaissance in house building by councils is ultimately needed if we are to stand any chance of solving our housing crisis. Councils must be able to replace sold homes and reinvest in building more of the genuine affordable homes our communities desperately need.”