Building of new homes at its slowest since 1945

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The number of new homes built in 2008 will be the lowest in any year since the end of the Second World War, the construction industry said yesterday, in the latest serious blow to Government housing targets.

Private-sector new-builds and social housing projects would total just 147,000 dwellings this year – a 27 per cent decline on 2007 and the lowest figure since 1945, the Construction Products Association (CPA) said.

Michael Ankers, the CPA's chief executive, said a combination of factors – including lower mortgage availability, the diminishing prospect of interest rate cuts and the small-scale nature of social housing schemes – had taken a heavy toll on the construction sector. "The impact on the new-build housing market has been more severe than any of us anticipated," he said. "To be starting fewer new homes than at any time over the last 60 years illustrates the scale of the problem that we face."

Mr Ankers also warned that without immediate support for the industry, production cuts would leave most builders without the ability to increase quickly construction once the economic environment improves. "Unless something is done urgently to address this problem, the capacity in the industry will be cut to a level which will take a long time to build up and it will not be able to meet the inevitable pent-up demand," he said.

The CPA's warning suggests that the Government's ambition of building more than two million new homes over the next nine years – its official target is 240,000 a year by 2016 – is even more unlikely to be realised than was previously thought.

A spokesperson for Communities & Local Government said: "We are working with industry to address their concerns, but there is ... a long-term fundamental mismatch between supply and demand. We have a strong and stable economy, with record numbers of people in work – this means the conditions are right for a healthy housebuilding industry in the medium to long term."

Even so, there is little sign of any immediate improvement, with demand for housing constrained by fears of falling prices and lower mortgage supply. The Council of Mortgage Lenders said yesterday that it expected house prices to fall by 7 per cent this year.

Nationwide Building Society raised the cost of its fixed-rate mortgages, as well as some variable-rate products, after a sharp increase in the cost of funding on the wholesale money markets. Woolwich also withdrew a number of fixed-rate deals yesterday.