A computer-based formula used to decide where houses should be located has been “updated” to focus more on cities and urban areas in the North and Midlands.
Ministers said cash for brownfield sites would be distributed more fairly outside of London and the South East.
Some MPs in southern areas had warned they risked being “concreted over”.
The government wants to build 300,000 new homes across England each year by the mid-2020s.
In August, it proposed a new formula designed to provide a rough estimate to local councils on how many properties needed to be built in their communities.
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Under the plan, local authorities would then be expected to come forward with potential sites for new buildings – taking into account constraints, such as areas protected by the green belt.
But several senior Tory MPs expressed concerns about relying on what one of them called a “mutant algorithm” to determine local housing needs.
In a Commons debate in October, ex-PM Theresa May said the plans were “ill-conceived”, while ex-Foreign Secretary Jeremy Hunt suggested the government appeared not to care what local communities think and risked “undermining” local democracy by pressing ahead.
While the 300,000 target, a Conservative manifesto commitment at the last election, remains in place and new homes will still be built in the South, the government said it had listened to MPs’ concerns.
As a result, it will be prioritising brownfield sites in England’s 20 largest cities and other urban areas for new family homes, maximising the use of vacant buildings and underused land.
A new taskforce has been set up to advise on inner city regeneration and how best to respond to the hollowing out many areas by the pandemic and the fall in demand for office and retail spaces.
The West Midlands and Greater Manchester Mayoral Combined Authorities will receive £67m in new funding between them for brownfield developments while a new £100m fund will be launched in January enabling councils across England to pitch for money to support developments on public land and regeneration of council estates.
Ministers have also pledged to reconsider how up to £7bn in future funding is allocated across England so that it is not concentrated in the most prosperous areas in London and the South East.
Housing Secretary Robert Jenrick said the pandemic had “created a generational opportunity for the repurposing of offices and retail as housing and for urban renewal”.
“We want this to be an opportunity for a new trajectory for our major cities – one which helps to forge a new country beyond Covid,” he said.
Critics of the government’s plans said the changes were welcome and represented a step in the right direction.
“This is good news,” said Bob Seely, Conservative MP for the Isle of Wight. “This is an initial victory for those who care about their communities.
“I – and I am sure many others – want to work supportively with the government to make sure we build the right homes in the right places.”
“That means understanding local need in different communities and listen to people across England to allow flexibility in how and where housing is built.”