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The coalition government has launched a wide-ranging review into the funding and construction of affordable housing.

The review, commissioned by Treasury chief secretary Danny Alexander and communities secretary Eric Pickles, is designed to assess if councils are making sufficient use of their existing powers and financial muscle to deliver new social housing. 

In particular it will ask if councils could do more to sell valuable vacant properties in order to spend the receipts on the creation of more affordable housing in other areas.

The review, to be led by Natalie Elphicke, chair of Million Homes, Million Lives, and Keith House, leader of Eastleigh Borough Council, will also assess whether councils should be given more financial flexibilities in order to drive the construction of new homes.

Chancellor George Osborne announced 拢300m of borrowing headroom in the Autumn Statement for councils building new affordable homes. However, the move, which was in response to fierce lobbying from local councils to be allowed to borrow to fund housing construction, was criticised as far too timid.

In addition, the review will also look at how councils can work more closely with housing associations, housebuilders and businesses to build more new homes.

Chief secretary to the Treasury, Danny Alexander said: 鈥淭he government is on track to deliver 170,000 new affordable homes over this parliament. I am, however, determined that we do even more. That is why we have announced this new review into the role local authorities can play in helping to meet our housing needs.鈥�

Communities secretary Eric Pickles said the review 鈥渨ill now consider if extra freedoms and financial flexibilities could be devolved to councils, so they can build more homes that local people need.鈥�

The review was welcomed by the social housing sector, which has criticised the government for previous proposals being far too modest.

Gavin Smart, director of policy and practice at the Chartered Institute of Housing (CIH), said the government should allow councils to borrow a further 拢7bn to fund new homes.

He said: 鈥淕iven the scale of that [housing] crisis, a review of the role councils can play in boosting the number of homes being built is timely.  We think local authorities should be allowed to borrow more so they can build more homes 鈥� we were pleased to see the chancellor acknowledging this principle in last year鈥檚 autumn statement, but the steps announced were far too modest.鈥�