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The Housing Corporation plans to cast aside its rulebook on the funding of housebuilding in a bid to loosen restrictions on housing associations and provide new homes. The plans, which include an end to current cost guidelines and more partnering arrangements between the Housing Corporation and the largest developing associations, are to be worked up over the summer before being presented to the Office of the Deputy Prime Minister in September.

Speaking at this week's Chartered Institute of Housing conference in Harrogate, the corporation's assistant chief executive, Neil Hadden, said that the formula for estimating development costs was "outdated" and acted like a "straitjacket" on housing associations.

He added: "We should be able to say: we want to build houses here – it may be expensive, but so what. We need to start taking a more rounded approach that will allow the corporation to allocate grants that are higher than the benchmark costs."

A way of assessing costs would be retained, Hadden said, but only to give a broad indication of what they should be in order to guarantee value for money. Hadden also gave more details about moves to establish partnering agreements with those housing associations judged by the corporation to have the greatest capacity for development.

The proposals, which include plans to provide associations with long-term development funds, would pave the way for the number of developing housing associations to be reduced to as few as 80 – more than 250 fewer than at present.

The corporation's first partnering agreement with a large, developing association is expected to be in place by next year. Currently the corporation will only allocate development grants of up to 110% of the total cost indicator – the theoretical price at which at which it believes a housing association should be able to deliver a particular development.

However, the formula has come in for serious criticism from the housing sector in recent years for its lack of flexibility.

Housing associations feel they have been forced to jump through hoops by the corporation to meet its cost estimates. They are also concerned that development in high cost areas is increasingly infeasible.

The proposed changes have won widespread praise within the sector, despite fears that smaller associations could be prevented from developing their own homes.

David Cowans, chief executive at top-10 developing association Places for People Group, said that changing the cost assessment formula was "absolutely essential if housing associations are to make a difference in London.

"Associations need long-term certainty if they are to deliver on things like off-site manufactured housing."

At the same meeting Clive Clowes, the Housing Corporation's assistant director of investment, revealed that standardised house designs for grant-funded schemes would be unveiled by this September. The Housing Corporation is understood to be considering designs from housebuilders Barratt and Westbury's prefab division Space 4.

Clowes said that a set of accredited designs would help to cut development costs, by factoring out all unnecessary design work.

Meanwhile, the government moves this week to establish regional assemblies in three areas of the north of England could fundamentally alter the corporation's investment role.

The North-west, North-east and Yorkshire & Humberside are to be given the chance to vote on whether or not they desire powers to be devolved from the government in Westminster.

Any regional assemblies in these areas would take control of the regional housing boards as part of the assemblies' remit over housing and planning.

Steve Machin, chief executive of the North West regional assembly, said: "In those areas that move forward to seek elected status, the unelected and unaccountable quangos and bodies like the Housing Corporation would not have that significant a role in the future in those regions."

A spokeswoman for the ODPM said any changes would take place over time but that provisions could be made regarding the transfer of Housing Corporation staff to any regional assemblies.