Home ownership 'to fall to mid-80s levels'

The proportion of people living in owner-occupied homes is forecast to fall to 63.8% by 2021, down from 72.5% in 2001. Photograph: Luke Macgregor/Reuters

The housing market is in crisis as home ownership tumbles and house prices soar, a study has warned.

Home ownership in England will slump to just 63.8% over the next decade – the lowest level since the mid-1980s, the National Housing Federation's forecast, published on Tuesday, said.

Huge deposits, combined with high house prices and strict lending criteria, have sent home ownership into decline, the federation said.

The housing minister, Grant Shapps, admitted that "we have not been building enough homes", but insisted the government was "in the process of reversing that through massive planning reform" and a "massive programme" involving the release of thousands of acres of public land to build new homes.

The National Housing Federation, which represents England's housing associations, warned that the housing market will be plunged into an unprecedented crisis as it also forecast steep rises in the private rental sector and a house price boom. It blamed the bleak outlook on an under-supply of homes in the UK.

The chief executive, David Orr, said: "With home ownership in decline, rents rising rapidly and social housing waiting lists at a record high, it's time to face up to the fact that we have a totally dysfunctional housing market.

"Home ownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy.

"And for the millions locked out of the property market, the options are becoming increasingly limited as demand sends rents rising sharply and social homes waiting lists remain at record levels."

Shapps said the reason house prices had become so unaffordable was a tripling of prices in the space of 10 years from 1997 to 2007, which put them out of reach for many people.

Asked about the study's forecast for future levels of home ownership, the minister said forward predictions were "hellishly difficult" to make and were "nearly always wrong".

He cited a Halifax survey showing that house price affordability has been "improving quite dramatically" and that prices were more affordable than any time over the last 12 years.

However, he admitted there were significant challenges for first-time buyers and said the government had a responsibility to help home ownership.

Asked about the measures being taken, he told BBC Radio 4's Today programme: "We are releasing enough government land to build Leicester twice over across the country – it is a massive programme.

"The new homes bonus is a multi-billion pound incentive to communitiesto build programmes, and we are hugely reforming the planning system, which is massively complex."

He said thousands of pages of planning guidance and law were being boiled down to about 60 pages in a reform "that even the National Housing Federation, who have produced this report this morning, approve of".

He added that he would be very disappointed if it did not achieve the goal of building more homes.

The federation forecast that, in England, the proportion of people living in owner-occupied homes will fall from a peak of 72.5% in 2001 to 63.8% in 2021.

In London, the majority of people will rent by 2021, with the number of owner-occupiers falling from 51.6% in 2010 to 44% by 2021, it said.

The north-east will be the only English region to see any increase in owner-occupier numbers over the next decade, rising marginally from 66.2% to 67.4%, the federation predicted.

Meanwhile, the average house price in England will rise by 21.3% over the next five years from £214,647 in 2011 to £260,304 in 2016, according to Oxford Economics, which was commissioned to produce the forecasts.

Average rents in the private sector are forecast to increase by 19.8% over the next five years, fuelled by high demand and a shortage of properties.

About 4.5 million people are currently on social housing waiting lists, but only those in the most desperate of circumstances have a realistic chance of being allocated a home.

The federation said that, in 2010-11, 105,000 homes were built in England – the lowest level since the 1920s.