Housing shortage to drive property prices up 22%

The drastic shortage of new homes coming onto the market will drive property prices even higher over the next few years, despite a short-term slowdown, according to a group of leading economists.

Research conducted by economists at Oxford Economics project that the shortage of new homes being built will lead to a 22% rise in the average price of a home in England over the next five years.

It estimates that average residential prices will increase by 7.5% this year, show a decline of 3% in 2011 and increase again by 0.9 per cent in 2012, followed by further capital growth in 2013 and 2014.

A report by the National Housing Federation (NHF), Home Truths 2010, reveals that the supply of new homes is falling. In 2009/10, the volume of new homes in England was 87,360 - just a third of the demand for housing. Residential prices nationally are still 120% higher than they were 10 years ago.

The undersupply of new homes is restricting supply, which in turn is pricing people out of the housing market.

NHF chief executive David Orr said: "Even though price rises look sluggish for the next few years, affordability is not improving for many low-to-middle income households - as banks continue to restrict their mortgage lending and house prices remain historically expensive in relation to salaries.

"There's a very real risk that an entire generation will be locked out of the housing market for the foreseeable future and people will increasingly look to buy or rent an affordable home instead."