New data shows house building in the UK in 2002 fell to below 150,000 - the lowest level since the First World War.

And this, says a report released today, implies that although house prices will stabilise and fall in some areas over the next two years, the shortage of housing means that there is only a 5% chance that there will be a house price collapse.

The report from the Centre for Economics and Business Research predicts that annual house price inflation for the UK as a whole will fall from its current rate of 24% (HBoS) to 8.8% by Q4 2003, 3.6% by Q4 2004 and 1.5% by Q4 2005. But after 2006 house price inflation at a rate faster than average earnings growth is forecast to resume.

Rates of increase of 6% from 2007-2013 and 5% from 2013 to 2023 are forecast, with house price growth only slowing into line with average earnings growth around 2020.

The report questions the Government Actuary's Department's new forecasts for the UK population growth, claiming they are based on implausible elements of the 2001 Census, which has almost certainly failed to record major elements of immigration into the UK.

The report concludes that the UK population by 2025 will be almost a million higher than the government's own forecasts, with desired household formation also running higher than the government predicts.

Meanwhile, the failure of successive attempts to reform the planning laws to encourage house building means that there is likely to be a continued shortage of houses.

The report forecasts that this shortage will mean that prices will have to rise to bring supply and demand into line.

The report also draws attention to the importance of the 'new paradigm' for borrowing, where with consumers expecting much lower nominal interest rates now than in the future, they are prepared to gear themselves up to much higher ratios of debt to income than in the past.