Construction slump wrecks plan to boost supply of new homes

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The Government's plans to ease the UK's housing shortage by building some two million new homes by 2016 were close to collapse last night, as official figures revealed that private and public housing starts slumped in the first quarter of this year.

The Government wants to see 240,000 new properties built each year, but is already behind on its targets with only 200,000 homes completed in 2007. Yesterday, the Office for National Statistics said that private housing orders fell by 29 per cent in the three months to March compared with the same period in 2007.

Some £1.4bn worth of private housing was started during the period, the lowest figure since the final quarter of 2000.

The slowdown in the private new homes sector appears to be gathering pace, with the level of starts falling for the fourth month in a row during March to just £420m worth of properties, the lowest figure since November 2000 and nearly half the recent peak of £793m in May last year.

Public housing and housing association orders are down by even more, with the ONS reporting a 36 per cent decline.

The figures were published a day after the Prime Minister reaffirmed his determination to ease the problems in the housing market. Mr Brown said on Wednesday: "My aim and my priority is that we can lead the people in Britain through this economic problem and do so by taking the right decisions to get liquidity to the banks, to make sure that the housing market starts moving again."

Caroline Flint, the Housing minister, said: "It is essential – and in their own interest – for house-builders to base their decisions on the solid footing of the economy and longer-term trends."

So far, however, construction companies have been reluctant to take ministers' advice. Yesterday, Hammerson became the latest company in the beleaguered industry to report challenging times, warning that banks' reluctance to lend money was hampering the launch of new projects in the commercial sector.

Hammerson said it had suffered from further falls in property values and an easing in City of London rents as banks cut staff numbers because of the credit crunch. The company, which owns shopping centres including Brent Cross in London and West Quay in Southampton, said retailers faced weak conditions, but added it continued to attract firms to major developments in Bristol and Leicester. It said the vacancy rate within its shopping centre and retail park portfolios remained low, at 2.6 per cent.

The group said: "The banking sector has remained cautious about advancing new loans, particularly to the commercial real estate sector. Activity in real estate markets remains restricted and it is apparent that there have been further declines in UK property values."

Last week, Persimmon, one of the country's largest housebuilders, said it was putting new projects on hold after reporting a 24 per cent drop in sales this year so far. Taylor Wimpey warned that orders since January were 26 per cent down.

The Bank of England's £50bn Special Liquidity Scheme may succeed in easing the credit crunch, but the Governor, Mervyn King, has said that it is not designed to "kick start" the property market and that it would be "a serious mistake to go back to where the mortgage market was a year ago".

The construction sector has seen a fall of 8 per cent in activity, with the slump in housing only partly offset by road building and other public sector works.

The lack of supply of housing has taken its toll on tenants in rented accommodation, where in England and Wales it reached £1,003 a month in March, a rise of 4 per cent during the past quarter and 12 per cent during the past six months, according to the specialist lender Paragon.