The organisation stated the initiative could "significantly boost housing output" and provide a "welcome shot in the arm" to the sector.
Brian Berry, Chief Executive of the FMB, said local authorities can play a key role in financing an increase in housing output in a safe and sensible way.
"The Autumn statement presents an opportunity for the new Chancellor to think creatively about how to address the country's growing housing crisis," he said. "We simply aren't building enough new homes to meet current demand which is why we're calling for the Chancellor to empower local authorities to borrow money to build thousands of new social homes.
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"The Government clearly recognises the extent of the housing crisis we face and has signalled its willingness to bring forward a wide-ranging package of measures to tackle this, many of which we expect to see in a forthcoming White Paper.
"Nevertheless, the gap between the number of homes we are building and the 250,000 a year figure widely accepted to be necessary in order to address the housing shortfall remains significant.
"The construction industry is amongst the first major areas of the economy to be affected during an economic downturn and even a minor dip in confidence could be disastrous for the Government, if it is to meet its target of one million new homes by 2020."
(LM/JP)
