Under the New Homes Bonus scheme, the government matches the council tax earned by local authorities from each new home built, converted or brought back into use over a six-year period.
In a statement to the House of Commons today, Javid told MPs that the New Homes Bonus "is an important part of our commitment to reward communities and authorities that embrace and deliver ambitious housebuilding plans – it also provides valuable income for councils seeking to grow their local economies which they can then go on to spend as they see fit".
But he add that, "for all its successes, the system can be improved".
He said: "A year ago we consulted on a number of possible reforms to the scheme. Having studied those results closely, I can confirm today that from next year we will introduce a national baseline for housing growth of 0.4 per cent. Below this, the New Homes Bonus will not be paid.
"This will ensure rewards are given for additional housing, rather than just normal growth".
Javid added that, from 2018/19, the government would consider holding back New Homes Bonus payments "from local authorities who are not planning effectively by making positive decisions on planning applications and delivering housing growth".
"To encourage more effective planning, we will also consider withholding payments for homes built following an appeal – a consultation on this will take place in due course", he added.
Javid said that the government would also "implement our preferred approach in the consultation to reduce the number of years in which payments are made from six years to five years in 2017/18 and for four years from 2018/19. This will release important funding for adult social care."
The government’s response to a consultation on proposals to reform the bonus reveals that it has opted not to push ahead with plans to withhold the incentive for 2017/18 from local authorities who have not submitted a local plan.
The consultation response said: "As the government is implementing wider planning reforms to get the nation building the homes it needs, including measures announced at Autumn Statement and through the Neighbourhood Planning Bill and forthcoming Housing White Paper, the government has decided not to introduce the proposals to withhold payments for areas without a local plan in 2017/18."
But it added: "The government will revisit the case for withholding New Homes Bonus from areas not delivering on housing growth from 2018/19."