The deal has been struck with infrastructure investor Pension Insurance Corporation and developer Muse, forming a new venture called Habiko.

The 12-year partnership plans to build tenant homes “for those whose needs are not met by the market, with rents set at 20% below the local market rent,” say the government’s housing and regeneration agency.

It adds that the Pension Insurance Corporation “will ultimately own the homes and places they have helped to create through its investment” and will have the ability to continue to fund other projects.

The firms add the homes, to be built in England, will be in accessible locations, close to employment opportunities and be designed to help residents save money on their energy bills.

Pension Insurance Corporation chief executive Tracy Blackwell says: “Meeting the UK’s affordable housing needs is a challenge that is best met through effective collaboration between government, developers, and private investors.

“The Pension Insurance Corporation has invested around £4bn in social and affordable housing to date, helping provide the secure, long-dated, inflation linked cashflows to back the pensions of its policyholders over coming decades, creating considerable social value.”

Homes England chief executive Peter Denton points out: “Attracting institutional investment into the housing sector is critical to build the new homes the country needs.

“This partnership supports our partners’ objective to deliver low carbon, low energy, affordable homes, bringing together the technical expertise and capability of Muse with the financial capacity of one of the UK’s largest pension fund insurers, cementing the Pension Insurance Corporation as a significant force in delivering affordable housing.”

The move is part of the government’s wider drive to build 1.5 million homes over the next five years, with social housing planned to be a bigger part of the mix. Over the previous five years, the country built around 1 million homes.

In last week’s Budget, Chancellor Rachel Reeves announced a £3bn package for small firms and the build to-rent sector to access cheaper finance for investment.

Knight Frank head of UK residential research Tom Bill said the measure “sends a clear signal that the government recognises that a key component of expanding housing supply and speeding up delivery rates will be embracing a variety of tenures and supporting more players in the market”.