Ministers have checked Birmingham City Council’s ambitions to develop 80,000 new homes by 2031 by arguing councils cannot go on ‘credit-card’ borrowing sprees.

Sir Albert Bore, the leader of Birmingham, the country’s largest local authority, claims the city needs to borrow more than £2bn to meet housing targets.

However, the government has imposed a £1.1bn cap on borrowing against Birmingham’s rental income.

Under current borrowing rules Birmingham is, unlike registered social landlords, unable to make up the shortfall from market lenders by leveraging its existing social housing portfolio – made up of 65,000 properties worth an estimated £4.5bn.

Sir Albert said: ‘Why is the local government cap so much lower for social landlords, who are operating in the same market sector.’

In March council chiefs, property developers, housing association bosses and policy experts published a letter, organised by London Councils, in the Financial Times newspaper calling on government to lift the housing revenue cap.

Signatories - who included Sir Steve Bullock, executive member for housing with London Councils, Grania Long chief for the Chartered Institute of Housing (CIH) and Sue Roberts, chair, National Federation of ALMOs – cited research indicating lifting the cap would allow councils to build up to 60,000 affordable new homes, adding 0.6% to gross domestic product and creating 19,200 jobs.

In financial terms, supporters claim relaxing the limit would enable authorities to borrow up to £7bn – more than twice as much as the £2.8bn they are currently able - to invest in housing over five years under prudential borrowing arrangements.

In response, planning minister Nick Boles, insisted the government would not relax current borrowing controls.

‘We have given councils greater control over their housing stock and new financial freedoms allow councils to make long-term investments and improvements.

‘But councils cannot go on a credit card spending spree, as all borrowing counts towards the national deficit.