Inadequate housing supply remains the most critical unresolved issue in UK housing policy, says the Council of Mortgage Lenders as it makes its submission to the government's housing review.

Without a substantial increase in supply, the current problems of lack of flexibility, lack of responsiveness and failure to absorb increases in demand will remain significant causes of volatility in the UK market.

There are hot spots in all the countries of the UK where more supply is needed, but the CML's response points out that Scotland and Northern Ireland have the least problems in terms of housing supply. In Wales, new house building roughly matches demand but there is a backlog of unmet demand. But it is in England that supply problems are worst.

Lenders cannot directly influence housing supply but, like consumers, they are impacted by it. Lenders provide development finance as well as residential mortgages, and there is no evidence of any constraints on finance in any of these areas.

Commenting on the CML’s submission to the review of housing supply, Peter Williams, CML Deputy Director General, said:

"Despite continuing house price rises, the supply of new homes has remained broadly static for a decade. There would need to be a huge increase in housing supply to really make a difference to the number of transactions and the stability of house prices."

"Even a dramatic increase in supply would not completely prevent house price surges - a major reduction in interest rates, or a new tax relief could also stimulate demand. But although an increase in supply would not solve all housing problems, it is the single most important - and complex - factor to be addressed."

"Lenders look forward to helping to find new solutions for this old problem as the review progresses."

The review of housing supply, announced by the Chancellor in the Budget, will produce an interim report by November and a final report by the time of the Chancellor's 2004 Budget.