A garden city with an initial 15,000 homes will be built at Ebbsfleet in Kent, George Osborne has announced.
The chancellor told the BBC's Andrew Marr Show the site was chosen because there was "fantastic" infrastructure and it was in south-east England where pressure on housing has been high.
He said local MPs were enthusiastic about the idea and local people wanted to see regeneration of the area.
Ebbsfleet has a stop on the high-speed rail line to the Channel Tunnel.
Speaking ahead of his Budget on Wednesday, Mr Osborne said the government's Help to Buy scheme would also be extended until the end of the decade.
'Cuts through obstacles'Explaining the decision to choose Ebbsfleet rather than richer parts of the country, Mr Osborne said: "In Ebbsfleet there is the land available, there is fantastic infrastructure with the high speed line.
"It's on the river, it's in the south-east of England where a lot of the housing pressure has been.
"And crucially you've got local communities and local MPs who support the idea.
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George Osborne said the government's initial plan was to build 15,000 new homes in Ebbsfleet
"We're going to create an urban development corporation so we're going to create the instrument that allows this kind of thing to go ahead and cuts through a lot of the obstacles that often happen when you want to build these homes.
"There are already some homes being built on the site, so progress was under way, but it was on a much, much smaller scale and with much less ambition than what I'm setting out today."
'Proper infrastructure'Gareth Johnson, Conservative MP for Dartford, said he "very much welcomed" the chancellor's announcement.
"The Ebbsfleet Valley has been a source of great frustration for many years," he said.
"Despite the efforts of the council and central government, we've never got the development we want to see in the area."
End Quote Gareth Johnson Conservative MP for DartfordThe Ebbsfleet Valley has been a source of great frustration for many years,"
He said attempts had been made to build new homes at Ebbsfleet since 1996.
Planning permission was granted for about 6,000 new homes at Eastern Quarry, near Ebbsleet station, in 2007, but nothing was done, he added.
"For whatever reason a developer has not been forthcoming and the recession didn't help," Mr Johnson said.
"What this announcement does is enable the proper infrastructure to be put in place."
In 2012, government ministers, three Kent councils and developer Land Securities agreed plans for about 22,600 new homes to be built in Kent Thameside in Ebbsfleet over 20 years.
Housing minister Grant Shapps said the development had been stuck on the drawing board for "a whole decade".
Last month, think tank the Centre for London set out its vision for a new town at Ebbsfleet with 35,000 homes.
It said the plans could act as a catalyst for further development in the south-east and help tackle London's housing crisis.
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