In her keynote speech to the Conservative party conference yesterday, Mrs May said the move shows her commitment to help fix the housing crisis.

Welcoming the announcement, CIH director of policy and external affairs, Gavin Smart, said: “This is excellent news and we look forward to seeing the detail. We have been calling on the government to lift the local authority borrowing cap to help councils build more genuinely affordable homes so it’s great to see the Prime Minister listening to the voice of housing professionals.

“If we are to have any hope of tackling our national housing crisis, councils must play a critical role and this move will help them reach their potential. But if course it’s not just a numbers game – we need to make sure we are building the right homes, in the right places, at the right prices. That’s why it is so important to give councils the tools they need to build more truly affordable homes for social rent.”

The Housing Builders Association (HBA), the house building division of the National Federation of Builders (NFB), said it was delighted that the government is listening to the industry and finally addressing concerns which the HBA has lobbied on for quite some time.

The HBA has had the cap on local authority borrowing for new housebuilding as a measure in all of its past manifestoes and the entire supply chain has worked hard towards achieving this. Lifting councils’ house building cap will now help small and medium-sized (SME) builders and councils to work together to deliver the governments’ target of delivering 300,000 homes a year.

Richard Beresford, chief executive of the NFB, said: “The NFB congratulates the prime minister for recognising a substantial barrier preventing the government from meeting its target to build 300,000 new homes a year.

“Lifting the borrowing cap for councils will diversify the housing market, stimulate industry capacity and help councils more easily meet their affordable homes requirements. The entire housing supply chain should be very proud of their collective campaigning on this issue.”

The Federation of Master Builders (FMB) said lifting the borrowing cap is a victory for bold thinking and common sense.

Brian Berry, chief executive of the FMB, said: “This is the most exciting, and potentially transformative, announcement on council housing for many years. It is something the house building sector and local authorities have been crying out for since the last economic downturn as a means by which to increase house building. Indeed, the only times the UK has built sufficient numbers of homes overall is when we’ve had a thriving council house building programme.

“Local authorities have a strong interest in delivering new affordable homes and many would have the appetite to directly fund this, but have been frustrated from doing so by an artificial cap on their ability to borrow against their assets to build homes. In a victory for common sense, Mrs May has now signalled that the borrowing cap will be scrapped to allow councils to build many more new homes.

“We believe this could also have the added benefit of expanding the capacity of the private sector by providing more opportunities for SME builders. In this way, a stronger public sector house building programme can complement and help support a stronger, more diverse private sector. The private sector will continue to take the lead in delivering new homes, and to ensure it can do so, we need to continue to lay the foundations for a diverse private sector in which new firms can more easily enter the market and small firms can more easily prosper and grow. However, in order to deliver the number of new homes the government is targeting it is going to be necessary for the private and public sectors to both be firing on all cylinders. That’s why this announcement is so welcome.”

Mr Berry added: “However, as much as this is a bold and praiseworthy move by the Prime Minister, new homes of any sort will not get built if we as an industry don’t have the people we need to build them. Recent announcements on post-Brexit immigration rules, if implemented as currently understood, will be a serious threat to our ability to deliver on the promise of this policy. The failure of the government so far to listen to the construction industry could unfortunately threaten the delivery of the government’s increasingly bold moves to solve the housing crisis.”