He also announced a new £2.3bn Housing Infrastructure Fund for infrastructure for up to 100,000 new homes in high demand areas.
Hammond said that the government would "more than double" annual capital spending on housing.
The Chancellor also announced an additional £3.15bn for 90,000 new homes in London.
In a move to help renters, Hammond also confirmed that the government will ban letting fees to tenants "as soon as possible”.
Stephen Smith, Director, Legal & General Housing Partnerships, commented: “The Chancellor’s pledge to add another £1.4bn into the housing market is desperately needed and will be welcomed by both the industry and hopeful first time buyers across the nation. This injection of capital is aimed at delivering 40,000 new affordable homes in England. Due to the serious shortage of properties, our country’s housing market has become increasingly selective and exclusive, pricing out many buyers who are unable to meet these overwhelming financial demands.
“This decision is a welcome first step in rebuilding the fragmented sector. However, this act alone will not solve our housing crisis. The additional funding will hopefully go some way towards helping the Government achieve its build target of one million affordable homes by 2020 and will encourage a collaborative effort from the Government and house building associations.”
However Robert Pullen, Senior Manager at Blick Rothenberg, said the Chancellor "missed a golden opportunity to kick-start the supply of new homes by not offering tax-incentives to release brownfield and greenfield sites".
