Housing shortage reawakens fears of Eighties boom

House prices rose at the fastest rate for more than a year in May, according to the first of a series of surveys that is expected to reawaken concerns of a repeat of the boom and bust of the Eighties.

A survey published today by the Royal Institution of Chartered Surveyors, which is keenly watched by the Bank of England, reported a sharp rise in optimism among estate agents.

The report came as the house building industry warned that a shortage of new homes threatened to create an unsustainable boom.

RICS said the net percentage of surveyors reporting price rises as opposed to falls rose to a seasonally adjusted 47 last month, the highest since March last year and up from 37 in April. "Despite an on-going shortage of properties, gloomy economic forecasts, foot-and-mouth and the general election, the housing market remains on the up," RICS said.

East Anglia and Humberside and Yorkshire reported the sharpest increases in price, but the gap between North and South narrowed as London recorded the strongest price rises in a year. The net balance for the capital surged 21 points to 55.

There was little sign of gloom outside the South as surveyors in the North, North-West and Yorkshire are more optimistic than at any time since RICS started its survey.

The survey showed that the number of homes for sale on surveyors' books fell in May. "Potential sellers have delayed putting their properties on the market until they have found somewhere to buy," it said.

Over the next fortnight, Halifax and Nationwide, two of the UK's largest mortgage lenders, will publish their figures for June and a regional breakdown for the last three months. Industry experts expert them to show strong growth.

The House Builders Federation (HBF) warned that a continuing shortage of homes would push prices high and urged the Government to sanction a major building programme. Pierre Williams, HBF spokesman, said: "This survey raises the spectre of house prices getting out of hand, creating affordability problems if interest rates should rise. We have a permanent under-supply so prices will continue to escalate out of sync with the rest of the economy."

He said government estimates showed new households were outpacing the building of new homes by more than 40,000 a year.

A recent report commissioned by the National House Builders Confederation found that under-investment in housing – both public and private – was comparable to the situation in the NHS and the transport system.

"Long-term under-investment may eventually have serious consequences for the UK which could take decades to remedy," it said.

Figures from the Department of the Environment show that 18,000 fewer new homes were built in 2000 compared with 1991.

Evidence of a shortage was confirmed by anecdotal evidence from estate agents and surveyors. Ian Davidson, of Davidson Partners in Penrith said there was a "noticeable" shortage". "Anything available is being snapped up," he said.

David Oswick in Halstead, Essex, described the shortage as "extreme", while Ian Sandy in Mansfield said that "aggressive" competition had led to the re-emergence of sales decided by sealed bids.

However RICS warned house price inflation would slow if the economy continued to slow. Looking forward, its members were at their least optimistic about prices for seven months.