Treasury plans £5bn total investment in housing supply and reduction in discounts under right-to-buy scheme

Rachel Reeves at a rent-to-buy housing scheme in Liverpool. The chancellor said the housing crisis had created a generation locked out of the property market. Photograph: Christopher Thomond/The Guardian

The Treasury has announced an extra £500m for social homes in the budget, in what appears to be a compromise with the housing department, led by Angela Rayner, over the scale of ambition required in the sector.

The promise of an additional £500m for the government’s affordable homes programme (AHP) is intended to add up to 5,000 extra social homes. The Treasury said it will bring total investment in housing supply to £5bn.

Additionally, Wednesday’s budget will aim to help housing supply by allowing social landlords to fix rent increases for a five-year period, giving them the financial security to invest in more stock.

Discounts on the right-to-buy scheme, which allows social tenants to buy their homes at a significant discount, will be reduced, as expected. This is to limit the loss of social homes to the private sector.

While the measures were hailed as significant by the chancellor and Rayner, the deputy prime minister and housing secretary, there had been reports that the AHP could get a £1bn top-up, and many social housing providers had hoped for a 10-year guarantee on rent increases.

The package is an accommodation between Rayner and Reeves after tensions over how heavily to invest in social homes, which the former sees as crucial to alleviating the housing crisis. The government is committed to building 1.5m homes over the current parliament.

The rent settlement for social housing providers, such as housing associations, will be put out to consultation, with the “intention” being that each year the maximum increase will match the figure for consumer price index inflation, with an additional 1%. The process will also look at whether a 10-year arrangement would bring greater certainty.

Official statistics show that in the decade to 2022-23, when just under 94,000 new social homes were built, more than 212,000 were sold via right to buy, and another 58,000-plus demolished.

The next five-year spending review, to be announced in parallel with the budget, will set out subsequent commitments to the AHP. The Treasury announcement promised this would “lay the foundations for the manifesto commitment to deliver the biggest increase in social and affordable housebuilding in a generation”, with a particular focus on social rent homes.

Rayner said: “We have inherited a housing system which is broken, with not enough homes being built and even fewer that families can afford.

“This is a further significant step in our plan to get Britain building again, backing the sector, so they can help us deliver a social and affordable housing boom, supporting millions of people up and down the country into a safe, affordable and decent home they can be proud of.”

Reeves said: “We need to fix the housing crisis in this country. It’s created a generation locked out of the property market, torn apart communities and put the brakes on economic growth.”

The National Housing Federation, the Home Builders Federation and the estate agent Savills have said the government will fall short of its ambition to build 1.5m new homes during this parliament by nearly half a million without “significant government support for social housebuilding and first-time buyers”.

In a report earlier this month, the bodies said: “There is likely to be a shortfall of up to 95,000 new homes a year on average.”

There were 1.3m households on social housing waiting lists in England as of March last year.