This paper will examine the political and ideological background to the ‘ credit crunch’ and will consider the role of British state agencies in generating the market downturn. The paper will examine the consequences of the fall in housing market transactions and housebuilding on wider government policy objectives on housing production targets, the affordable housing programme, the estate regeneration programme and the development of sustainable communities. Through using development appraisal methodology the paper will assess the impact of the fall in sales values on specific major developments proposals in London. The paper will then consider the successive policy initiatives proposed by the British government and government agencies, including the newly established Homes and Communities Agency, to maintain the housing programme within the changed economic context. It will assess the potential impact of these initiatives and consider the prospects of further interventionist measures. The paper concludes that the ‘credit crunch’ has demonstrated the need for a fundamental shift in British housing policy based on abandoning the dependence on an unregulated housing market and replacing it by public sector led intervention to ensure effective long term stability in the housing market and the affordable housing programme.