Danny Alexander tells housebuilding sector ‘if you don’t build them, we will’, with pilot project under way in Cambridgeshire

A government agency could plan, build and sell tens of thousands of homes on public sector land, under proposals being prepared by the Treasury chief secretary, Danny Alexander.

The homes would be sold at a profit to the private sector.

A pilot project is under way at Northstowe, a former RAF base in Cambridgeshire, with the capacity for 10,000 houses, which would make it the largest planned town since Milton Keynes.

Alexander laid out his thinking, first aired at the Liberal Democrat party conference in September, at the launch of the national infrastructure plan 2014 before the autumn statement on Wednesday.

Alexander said he believed direct government commissioning of houses through the arms-length Homes and Communities Agency, as opposed to selling land to private-sector building firms, could help provide many of the 250,000 homes a year that the country needs.

He said the shortfall in construction meant the government had to think radically and consider using taxpayers’ money. “The message to the housebuilding sector would be simple: if you don’t build them, we will,” he said.

Alexander said the Treasury would undertake a feasibility study. Officials will be wary of anything that adds to overall borrowing and will want to study the cost to the government. The Treasury is fiercely opposed to lifting the cap on council borrowing to build homes, arguing that international accounting standards would require the borrowing to be placed on the public sector ledger.

Alexander also appeared to say that the government would need to find a further £30bn-40bn of extra cuts after the 2015 election to meet its target of ending the structural deficit by the target of 2017-18.

Alexander said: “In my view, as a country I think we need to think much more radically about how we deliver the homes that we need as a country. This seems to me to be an idea that can help change that. It is right to consider this plan. I think a lot more homes could be built on land currently owned by the public sector.”

Referring to Northstowe, he said: “What will be experimented on using this model is to bring forward more options on that site that can be built out more quickly. There is a lot of public sector land in central and local government hands. We have released sites for 100,000 homes, and we want to be much more ambitious in the next parliament. There is a strong case for this being done at more local level.”

The HCA will not merely assemble the land for a housebuilder but will retain possession to the point when the houses are sold on the market.

Alexander said he was waiting for a government-commissioned report being prepared by Natalie Elphicke, the chair of Million Homes Million Lives, and Keith House, the leader of Eastleigh borough council, on the role local authorities could play in increasing the supply of housing.

He said: “I am not sure lifting local authority housing caps is necessarily the right answer, but I want to see what they come up with in their review.”

The proposals also include planning reforms, a two-year extension of the affordable homes programme, a new garden town in Bicester, Oxfordshire, and the removal of barriers to shared home ownership.

At the same event, the infrastructure minister, Lord Deighton, announced that the government would publish a consultation paper at the next budget “to streamline and update the current compulsory purchase regime to make it clearer, fairer and faster”.

Alexander refused to comment on speculation that the Office of Budget Responsibility would significantly increase borrowing forecasts for this financial year.

“In this parliament we have made decisions on financial expenditure right the way through to the end of the financial year 2015-16, decisions that amount to over £120bn, a significant effort to get the country back on the right track.”

Discussing further cuts, he said: “There are several tens of billions more, but in the context of what we have done so far in this parliament, it is a further effort but it is smallish. That effort needs to be carried on up to the years 2017-18, which is when we have said we want to eliminate the structural deficit. As a country we have to finish that job because it is the work underpinning the strongest economic recovery anywhere in the EU. We have to stay that course. To deviate from that would undermine the economic recovery we have seen.”

The government has been criticised for underestimating the extent to which spending cuts have been implemented, as opposed to announced, in this parliament.

At the Conservative party conference, David Cameron said the £25bn of extra spending cuts needed in the next parliament were a quarter of the savings found in the current parliament.

Deighton said the government had transformed the economic landscape by committing itself to long-term capital projects. “We are building our way to prosperity. We have got ourselves a big portfolio of projects, we have got the financing in place, and we have got a massive, massive execution responsibility, and that is where the challenge lies,” he said.