The underlying shortage of homes in England could reach dangerously high levels of more than one million in less than two years, according to David Pretty, chairman of the New Homes Marketing Board.

While the property market is likely to remain depressed for some time, it will gradually improve when more mortgage funding becomes available. This pent-up demand will then be released into a market unable to satisfy the nation’s housing needs, said Mr Pretty, potentially sending prices surging back upwards:

“There is a very real possibility that property prices, which have fallen 15 per cent or more, could rise back to 2007 levels within five years. These sort of pressures invariably happen to any market when demand far outstrips available supply.

“The reality is that we are forming households at the rate of around 230,000 each and every year – that is the level we need to meet. But we haven’t built in anywhere near those quantities for many years, so we now have a serious backlog which continues to build up.

“As we have only been building, at best, an average of around 160,000 per year in the last decade – a figure which is likely to collapse this year and next to around 75,000 a year – the arithmetic is stark: by 2010, pent-up demand for homes to buy, to rent and for social housing could well be over 1 million, and that is dangerously high.

“The biggest impact of upward price pressures would be felt by the beleaguered first-timers who missed out in the boom, when prices were out of reach, and are now missing out again because, despite prices being much more affordable, mortgage funding and interest rates are still so far beyond reach that they are worse off than ever.

“We must not allow first-time buyers to be forgotten.They are absolutely crucial for the general health of the housing market and our future economic prosperity,” he said.