Development of new homes in the Midlands has reached a standstill which has severe implications for the long-term economic and social health of the area, according to Knight Frank’s latest Central England residential development review.

The Government estimates that house-building in the region this year will fall 10,000 short of its target of 41,061 homes. The report suggests that this prediction is overly optimistic, as housing starts for Q1 2008 were around -60% below the required level.

This will add substantially to the massive shortfall of accommodation that has already built up in a region where household numbers are set to increase by an average of +42,000 per year for the next decade and a half.

Liam Bailey, head of residential research at Knight Frank, said: “Although average prices in the Midlands have fallen by -5% since last autumn, the current crisis in development means that affordability is likely to become even more of a problem in the longer term.

“The longer developers cut back on output, the graver the situation will become, and not just in terms of sheer numbers. The capacity of the house-building industry will be severely damaged, and it will take a long time recruit and train the number of skilled employees needed to produce the homes that the country desperately needs.

“This may not seem a pressing issue with house prices now falling back rapidly. However, when the housing and mortgage markets return to vigour, the shortage will become a real barrier for anyone trying to get on the housing ladder, and will result in yet another spike in prices.”