Communities secretary Sajid Javid announced in a speech in Bristol today this would make it easier for housing associations to borrow to build more homes.
The decision overturns the Office for National Statistics' 2015 move to make them public bodies, which brought the debt onto the government balance sheet.
Javid said: “Freed from the shackles of public sector bureaucracy, associations will be able to concentrate on their core, crucial mission – building homes.”
The ONS said in a statement it had come to its conclusion “in the context of international rules laid out in the European System of Accounts 2010 and the accompanying Manual on Government Deficit and Debt 2016”.
The reclassication took immediate effect.
Melanie Rees, head of policy at the Chartered Institute of Housing, said: “It’s important that housing associations retain their independent status, not least because it means they can secure significant amounts of private finance to bolster public investment in housing.”
The move comes as official figures show the amount of new homes built each year has been rising since 2012-13, in 2016-17 217,350 were either constructed or converted, up 15% on 2015-16.
Javid also spoke about his desire to help local authorities enter the home building market.
“I want to give local authorities the tools they need to build more – and that includes financial help. I want to help local authorities because most of them deserve that help,” he said.
But he announced that the government would “start the formal process of intervention”, as set out in the February white paper, against 15 councils who had failed to agree local housing plans.
He warned other councils: “Get your plan written. Get your plan adopted.
“I’ve shown today that I will take action if this doesn’t happen.”
The LGA has said the government should lifts the cap on the amount councils can borrow to build homes and remove that borrowing from contributing to the national debt.
Theresa May, speaking at a new development in London today, also committed to increasing the rate at which homes were built as they have not returned to the pre-crisis peak of 223,530 in 2007-08. Housebuilding figures dropped after the economic crisis, reaching 124,720 in 2012-13.
The ONS confirmed to Public Finance that the English housing association debt at the end of October this year was £66bn.
