Those managing the supply side, the housebuilders, are clearly activated by movements in demand, but their response is usually lagged and severely constrained by problems associated with land supply and the political attitudes of those authorities responsible for overseeing planning permission.

The building of new houses has experienced the boom and busts of the housing market as a whole.

Generally, an upturn in the demand for houses (as shown by a rise in prices) encourages builders to increase housing starts. The response is delayed, however, because it typically takes 18-24 months between the purchase of building land and the completion of a house for sale, a period long enough for the market to turn.

As a result of the lag effect, builders have to take a view on future trends and if, as happened in the late 1980s, they are still buying land when the market turns downwards, they can get caught in a serious way. At that time, land prices were rising rapidly and most major building companies had built up sizeable land banks.

When demand conditions changed abruptly, land prices followed house prices downwards and builders found their stocks of land worth a lot less than they had paid for them. In addition, since most had bought the land with borrowed money, the doubling of interest rates put many companies under severe financial pressure.

From a peak of 221,000 in 1988, private sector housing starts dropped to just 120,200 four years later. Recovery thereafter was slow and it took until 1997 before the total again topped 160,000.

Since then, however, the stability that has characterised so much of the UK economy has spread to house building. Over the last decade, private sector housing starts were edging up towards the 1988 peak in a managed and sustainable way, but this has since gone into reverse.

The major difference between current total housing starts and the much higher figures of the 1960s and 1970s has been the virtual disappearance of the public sector as a house builder.

In the mid-1970s, the public sector accounted for over half the 300,000+ housing starts. By 2004, starts got back to 200,000, with private sector output close to record levels and social housing accounting for just 12% of the 213,000 total. The gap is explained by the fact that local councils no longer build.

From Table 14.3 below, it can be seen very clearly that the private sector is now the dominant force in house building, a 90% share of all starts in the period from 2000 to 2002 compared with half that 25 years earlier.

Table 14.3: Housing Starts and Transactions

Since the 1980s in particular, local authorities now have a very peripheral role and social housing is the responsibility of housing associations.

The current government is acutely aware of the difficulties some groups (first-time buyers, key workers such as nurses, teachers, etc.) face in trying to become owner occupiers.

As Chancellor, Gordon Brown commissioned the Barker report, which spelt out the need to step up the country’s housebuilding programme.

In one of his first statements as Prime Minister, Mr Brown committed the government to a major increase in new housebuilding, with low cost / social housing a key component.