Under the New Homes Bonus scheme the government will match the council tax raised on each new house for six years.
Housing Minister Grant Shapps said action was needed to attack housing shortages now home building was at its lowest level since the 1920s.
Full details of the scheme are expected to be confirmed later today. Shapps said: “We will not tell communities how or where to build.
“But the New Homes Bonus will ensure that those communities that go for growth reap the benefits of development, not just the costs.
“With house building falling to its lowest level since 1924 under the previous government, action is needed now to build the homes the country needs.”
There were 120,000 homes built last year and there are 4.5m people in England who are on council waiting lists.
For every new home built the government will match the council tax raised on each new house for a period of six years.
Local authorities are expected to have control over how they spend the money.