The Department for Levelling Up, Housing and Communities (DLUHC) has come under fire for giving back to the Treasury £1.9bn of the department’s budget it had been unable to spend.

The funds, budgeted for 2022-23 including £255m for new affordable housing and £245m for improving building safety, were meant to be spent by the DLUHC, headed up by Michael Gove, to help tackle England’s housing crisis.

However, officials were unable to spend the money – about a third of the department’s housing budget – because of increasing interest rates and uncertainty in the housing market.

Local government expert Jack Shaw, who uncovered the figures through a freedom of information request, said the government had faced “significant challenges investing in housing”.

He told told The Guardian, which reported the figures: “The decision to delay housing investment or withdraw it altogether as a result of lower than anticipated spending will mean fewer homes are built.”

Shadow housing secretary Lisa Nandy accused the government of “giving up trying to solve the housing crisis that they helped create”.

“Not content with slashing housebuilding by scrapping housing targets, stalling on renters’ reform or rowing back on their promises to leaseholders, ministers are either too incompetent or too out-of-touch to consider it a priority to fix dangerous buildings or build new affordable homes in the middle of a housing crisis,” she said.

A DLUHC spokesman said some of the unspent funds would be moved into future years’ budget – which Shaw pointed out would depreciate in value by inflation.

But the spokesman added: “We have a strong record on housebuilding – with more than 2 million homes delivered since 2010.

“Our target of delivering 300,000 homes per year remains and we are fully committed to funding and delivering our programmes that help us meet that target, including the £11.5bn Affordable Homes Programme.”

The figures show that in 2022-23, DLUHC underspent on the government’s affordable housing programme by more than £600m. It also handed back £245m budgeted for improving building safety after the Grenfell fire and £1.2bn allocated for the Help to Buy scheme.

Housebuilding in the UK has slumped amid soaring interest rates and increasing pressure on consumer finances.

Analysis by planning consultants Lichfields suggested Rishi Sunak’s decision to scrap mandatory targets to build 300,000 new houses per year would lead to an increase in “sofa surfing”.

The Lichfields analysis suggested a shortfall of 77,000 homes a year below the 300,000 ambition, resulting in an increase of 580,000 “sofa surfers” and concealed households by 2030.