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Chancellor George Osborne has announced a massive cut in the capital spending budget of the communities department, the main source of government spending on social housing.

Setting out his 2015/16 spending review in parliament this week, Osborne said the Department for Communities and Local Government鈥檚 capital budget 鈥� the main source of government spending on affordable housing 鈥� will fall from 拢4.8bn in 2014/15 to 拢3.1bn in 2015/16 鈥� a cut of 36% year-on year and a fall of 26% compared with this year鈥檚 level.

It is understood that the reduction in capital spending on affordable housing will be at least partly offset by rises in rent.

In the official document setting out the spending plans, the government said its affordable housing plans would 鈥渋nclude giving certainty that social rents will increase by CPI (consumer price index) plus 1% per year from 2015/16 to 2024/25.

Rents currently can rise only by the retail price index (RPI) plus 0.5%.

The government is also understood to be considering a way of funding affordable housing by taking equity stakes in new-build social homes.

Noble Francis, economics director at the Construction Products Association, called the cut 鈥渆xtremely concerning鈥�.

He said: 鈥淚t is a big standout figure in an area where we are building half the number of homes we need to meet the number of new households created each year and especially on the social housing side, where there is a shortage of two million homes.鈥�

The chancellor committed to 拢300bn of capital spending before the end of the decade, for 鈥渞oads to railways, bridges to broadband, science to schools鈥�.

Details of what 拢100bn of this infrastructure investment will be spent on were due to be outlined in detail by Treasury secretary Danny Alexander on Thursday (27 June).

The chancellor also announced the government is establishing a 拢2bn regional growth fund, which will be worth up to 拢10bn over the next five years, as well as an additional 拢800m for the Green Investment Bank in 2015/16. He also said the government would fund a feasibility study into a 拢12bn Crossrail 2 train line connecting north and south London and pledged to fund 180 new free schools in 2015/16, 20 new studio schools, and 20 new university technical colleges.

As announced in the Budget in March, Osborne said the government would reduce current spending by 拢11.5bn in 2015/16, allowing it to increase capital spending by 拢3bn a year from 2015/16 and by 拢18bn over the next parliament.

John Cridland, director-general of the CBI, said: 鈥淲hile the government talks a good game on infrastructure, we鈥檝e seen too little delivery on the ground. It is critical we see a real pipeline of projects announced.鈥�