According to Takeo Higuchi, the head of Japan’s largest home builder, Daiwa House Industry Co, Japan’s housing starts may drop to a 48-year low as the flagging economy puts off homebuyers.

Annual starts could go as low as 600,000 in “coming years” but it looks like starts will drop by more than -20% to 800,000 in the current year ending March 2010. Starts of 600,000 would be the lowest since 1961. Japan’s home starts were only 1.04m in 2008, down from a peak of 1.9m homes in 1972, according to data compiled by Ministry of Land, Infrastructure, Transport and Tourism.

Higuchi said: “The property market will remain sluggish for another year or two because Japan’s economy is in bad shape. High unemployment and falling wages are scaring away many potential buyers.”

Sales are also forecast to drop -7.2% to 1.57 trillion yen ($18bn) in the year ending March 2010.

The nation’s unemployment rate touched a post war high of 5.7% in July and wages have declined for 17 consecutive months.