The warning comes after the Chancellor announced in the Pre-Budget Report that more money for new social homes would be brought forward.

The National Housing Federation, which represents all the housing associations in England, says that unless the money is used to pay the builders of new social homes higher grant rates the supply of new, affordable housing could dry up in 2009 - which would have a devastating impact on the Government's housing targets.

Currently housing associations pay around 60% of the costs of building new social homes through raising cash from private lenders and selling homes on the private market while government grants cover the remaining 40% cost.

However, the economic downturn has badly hit the ability of associations to raise money privately and to sell homes on the open market.

The Federation wants the money that will be brought forward to pay for the building of new social homes to be used for increased grants otherwise it says associations will not be able to afford to build any homes in 2009 at all.

Chief executive of the federation David Orr said: "The Chancellor is to be commended for announcing that he is bringing forward the earmarked investment for new social homes.
 
"However, ministers must ensure that this money is used to increase grant rates to housing associations forthwith. Otherwise, the situation is so serious that associations simply won't be able to build new social homes next year.
 
"This would be a catastrophe for the millions of people on waiting lists for affordable housing - and would only serve to compound our national housing crisis."