Some 70,000 houses may have to be built each year to slow down escalating prices The British government's plan to build more housing is a sign the country's property market has peaked, but a crash such as Hong Kong experienced in 1997 will not follow the contruction of more homes, according to analysts. The British government has welcomed the Kate Barker Review, published earlier this month, which found that housing supply must be increased to stabilise the country's runaway sales market. The report was commissioned last year by Chancellor of the Exchequer Gordon Brown, who was concerned that rapid rises in housing prices would damage the country's economy. The review found that Britain had experienced a long-term upward trend in real house prices of 2.4 per cent annually over the past 30 years, which had created affordability problems. Moreover, housing market volatility exacerbated economic instability. A lower trend in house price inflation was needed, Ms Barker argued. To reduce house price rises to 1.8 per cent a year, an additional 70,000 homes might be needed in England each year, the report said. To bring it down to the European Union average of 1.1 per cent, 120,000 homes might be required. More affordable housing must be built to accommodate lower income earners, the report found. The planning system needed to be relaxed and larger sites assembled for development to facilitate increased building, it added. Property experts agreed more homes were required, but were concerned they might not be built in the right places. Others said the government's intervention indicated that the market had overheated. Robert Hadfield, an analyst at residentialinvestoralert.com, said Britain would not necessarily experience a Hong Kong-style property market crash if housing supply was increased. Rather, it was a sign of a future bust. The Hong Kong housing market saw a drastic decline in values in late 1997, plagued by a housing policy that substantially boosted new home supply to 85,000 flats a year. The market was also hit by the Asian financial crisis. A false perception among buyers that British house prices would continue to rise was the damaging issue, Mr Hadfield said. 'What happened in Hong Kong could happen here but the cause would not be an increase in housing. In the property market, a speculative bubble builds on itself, and it is at about this point when a government feels it should intervene. 'We have a total stock of about 20 million homes. Even if they built an extra 200,000 homes, is this 1per cent increase really going to swamp the market? I don't think so. Sentiment, not building, is the problem,' he said. Ed Stansfield, property economist at consultancy Capital Economics, said there was an urgent need to increase housing supply. 'The problem of undersupply is going to come to a head,' he said. 'At current building rates, each new house being built will have to last 1,200 years before it can be replaced to keep up with demand. Conceptually, it is clear that we need to build more houses.' He said implementation of the report recommendations would not exacerbate a market downturn because the Barker Review was focused on long-term structural rebalancing rather than short-term cyclical need. The consultancy said residential prices would fall 20 per cent over two to three years from the end of this year because values had risen faster than earnings. The Royal Institution of Chartered Surveyors (RICS) said the report's recommendations were in line with its own, but it was concerned new homes must be built in accessible areas. The government wanted most homes built in southeast England in areas outside London's fringe, such as the Thames Gateway and Milton Keynes, not all of which are well served by public transport. RICS policy officer Oliver Foster said: 'While many areas are not viable at present because of inadequate infrastructure, these will need to be provided over the medium and longer term. 'We believe the Thames Gateway will not succeed without Crossrail, for example. But there also needs to be confidence that schools, hospitals, drainage and so forth will be secured and in place to create the sustainable and viable communities in which people actually choose to live.' Mr Stansfield was also concerned new homes would be built in the wrong areas. 'You can build lots of homes in the Thames Gateway, but is someone going to want to travel from there to Lewisham?' he asked.