Housebuilding rising at fastest rate since Labour came to power

Housebuilders have embarked on a massive increase in construction, official figures showed yesterday as Gordon Brown, the Chancellor, added his voice to the chorus of warnings of a fall in property prices.

The number of new starts in the private sector jumped by 13 per cent in the three months to September compared with the same period a year ago.

This was a marked acceleration from the 10 per cent annual growth in the previous quarter and the largest rise since the summer of 1997. But housing experts said the increase would not be enough to alleviate the shortage of homes as it still fell well short of the growth in the number of households. Including council and social housing, work began on a total of 45,392 homes, up from 40,303 a year ago, while the private sector increased from 37,346 to 42,325.

Pierre Williams, the head of communications at the House Builders Federation (HBF), said the increase marked only a modest recovery from the historic low of some 25,600 hit in 2000. He said that although the housing industry built 162,000 homes last year, the Office of the Deputy Prime Minister (ODPM) had just raised its forecast for annual growth in the number of households to 280,000.

"So whilst improvements in the number is welcome, the supply crisis is nevertheless worsening rapidly," he said. "Production would need to increase by more than 70 per cent just to stand still, let alone tackle the backlog of unmet need."

He said it was likely that the increase was concentrated on start-homes to capture the pent-up demand among first-time buyers. One housebuilder, Barratt Developments, agreed, saying yesterday forward orders had broken through the £1bn mark despite concerns over a housing market slowdown. Charles Toner, its chairman, told shareholders at its AGM: "The underlying fundamentals... ensure that the medium and long-term overall demand will continue to exceed supply."

On Tuesday, Malcolm Harris, the chief executive of Bovis Homes, told analysts its output was aimed to "satisfy the demand from first-time buyers".

As the ODPM published figures, the Chancellor told MPs: "House prices are moderating and there is an adjustment in house prices taking place."

On Wednesday, the Bank of England gave its first explicit warning of a fall in property values, saying "prices may fall modestly for a period".

There was some good news for property dealers as a survey showed that growth in prices of rural land had overtaken residential values. The Royal Institution of Chartered Surveyors said prices had surged by 30 per cent over the last 12 months, overtaking the 18.5 per cent in the latest house price survey by Halifax bank.