Hometrack’s latest research highlights that more than two thirds (67%) of residential housing is made up of family homes comprising of three or more bedrooms, and three bed properties alone account for the bulk of supply (47%).

This means that properties for first time buyers make up 3.1% of housing supply in England and Wales; less than 800,000 dwellings.

“The lack of smaller sized homes combined with strong demand from investors and first time buyers has led to a constant upward pressure on prices at the bottom end of the ladder”, said Richard Donnell, Hometrack’s director of research. “This in turn has led to the value of one and two bed homes being compressed up towards the price of three bed properties, where values are set. The net result is relatively high entry prices for one bed homes, compounding the affordability pressures faced by first time buyers.”

The imbalance in supply not only affects first-time buyers but also sellers looking to trade down. For downsizers, the amount of equity released from their property is often limited and for many, it is not enough to compensate for the loss of space. This means lower turnover of family houses which in turn leads to a lack of supply of larger homes coming onto the market.

Donnell said: “Policy makers are clearly faced with some major challenges. The debate over increasing housing supply tends to be focused on the headline numbers with little emphasis on the types of housing that are needed.”

One solution to the problem could be to increase the development of smaller sized housing as a means of boosting the first rung of the ladder.