Houses will become completely unaffordable for first-time buyers unless many more are built, according to the National Housing and Planning Advisory Unit.

The unit was set up after Kate Barker, the economist, proposed in an official report that regional authorities ought to be advised on how much and what type of housing should be planned.

It is chaired by the economist Stephen Nickell, who was a member of the Bank of England’s Monetary Policy Committee, where he shared many a debate on interest rates with Ms Barker. This experience taught them both that the housing market cannot sensibly be regulated by interest rates while it is fundamentally distorted by a long-term shortage of supply.

Ms Barker put the accumulated shortfall at up to 600,000 homes in England alone, and new households were being formed at least one third faster than homes were being built. Yet forecasts that were used in Ms Barker’s report three years ago were soon obsolete.

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Whitehall had underestimated wildly the numbers of migrant workers arriving from new EU member states such as Poland. These workers are already seen by many economists as vital to keep the economy growing. They need places to live, as do young British people leaving home. So do rising numbers of foreign students and British residents going to university. As late as last year, however, the main source of the projected 209,000 extra households a year was from an increasing number of over35s living alone.

Ms Barker suggested that the rate of housebuilding in England needed to rise by 50 per cent to stop prices spiralling out of control, and would have to double to bring price increases in line with the growth in average incomes.

“Continuing at the current rate of housebuilding is not a realistic option,” she wrote in her report in 2003-04. Since then, annual housing starts in England – where Whitehall’s writ runs – have risen by 23,000 to 173,000.

Allowing for the higher migration rate, output would need to be more than double that to make any impression on the accumulated shortage. Yet this modest unit has taken three years to set up. Changes in planning that were deemed essential for a steep rise in output have yet to be made. There seems to be no big hurry.

In 1951, the Conservatives swept to office partly on a promise to build 300,000 houses a year, up from 200,000 a year shortly after the war. Harold Macmillan, the new Cabin-et-level Housing Minister, was told by his Prime Minister, Sir Winston Churchill, that his performance would “make or break his political career”. He organised the building of 327,000 homes in 1953 and 354,000 in 1954.

This feat was not unique. Between 1919 and 1939, when the population was about two thirds of the current level, four million homes were built in Britain, rising to an average 334,000 a year between 1935 and 1939. Building outpaced the increase in demand, creating an estimated surplus of 600,000. This approach is the only way to make housing affordable for families on average incomes, according to the policy mantra trotted out by ministers. Yet Yvette Cooper, the Housing Minister, shows no sign that her career depends on anything like 300,000 houses being build each year in the next three years.

Secretly, we do not want a rational housing market. A shortage suits so many people, including existing homeowners, all the main banks that lend and roll up interest to maintain demand, and the mortgage brokers and estate agents on ad val-orem commissions.

The haves wring their hands over the plight of the have-nots. Their paranoia is reserved for the threat that house prices might stop rising, if only in real terms or for a couple of years.

If enough skilled artisans are available, the number of homes being built could be doubled. History suggests, however, that it will not be achieved simply by throwing the green belt open to developers. In the inter-war period, and again in the 1960s, housing that was subsidised by taxpayers made up a quarter to a third of the total.

By the time that Margaret Thatcher promised the right to buy, council housing had become such a racket in some parts that few would want to return to it on a large scale.

It could be replaced by a new, cheaper, leasehold sector. The public sector would provide suitable surplus land free, instead of selling it to developers. The State would retain freehold and levy economic ground rents, keeping prices lower.

Commercial property developers would provide another sector if planning guidance obliged them to include a big residential element, say 40 per cent, in all large developments. This sector would play the key role in easing urban shortage. A new type of development using enforceable covenants would be needed to address rural housing problems.

These partnership schemes will only balance supply and demand if all the new building goes into the market pool, not into a separate, fenced-off sector. To do that, politicians need to take a long view. The myopic, like Ms Cooper’s recent predecessors, pretend to address the needs of the have-nots by dreaming up palliative schemes to subsidise demand without increasing supply. That just makes things worse, except for the haves, who can rub their hands over another boost to their housing equity.

Tall order

4 million People in England think they will never own their home

74% Proportion of adults who think house prices in their local area are a problem

245,000 Homes need to be built each year to steady market

174,060 Number of housing starts in the year to March 2007

Sources: NHPAU, Times archive, DCLG, Nationwide