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In a historic move, housing minister Margaret Beckett announced this week that councils will be allowed to keep the rental income from homes they either buy, build, or bring back into use, to invest in new housing.

They will also be allowed to keep the proceeds if these homes are sold to tenants through right to buy.

Echoing the days of mass council house building in the 1970s the Local Government Association predicted that the changes would lead to ‘many more’ councils building homes again. Sources from councils and arm’s-length management organisations said they would be actively exploring whether the changes would allow them to build homes.

Milan Radulovic, housing portfolio holder at Broxtowe Council, said it would be keen to develop.

If the government was sincere about its plans ‘then Broxtowe will be one of the first local authorities to take advantage of this’, Mr Radulovic said.

The government anticipates that its rule changes will lead to ‘thousands’ of new council homes being built.

The number of new council homes constructed each year has plunged from 12,960 in 1990 to just 310 last year.

Currently, around three-quarters of the proceeds from homes sold to tenants under the right to buy are pooled by the government. Receipts from right to buy sales in England totalled £934 million in 2007/08. Rental income from existing homes is pooled and redistributed to councils deemed to be the most in need. Under the new system, rent from new build properties will no longer be pooled, subject to approval from the secretary of state.

Martin Wheatley, programme director at the LGA, said it had been a long time since any government had been ‘that warm about councils’ role in relation to building’.

But he said the government would need to allow councils to keep rental income from existing homes if it wanted to have a real impact.

Paul Beardmore, head of housing strategy at Rochdale Council, said the announcement ‘will definitely be of interest’.

‘It is another option for the council to consider in terms of its absolute commitment in terms of its ability to build more council housing,’ he said.