First-time buyers are paying an extra £32,000 each in comparison to the European average, the report said.

"In recent years house prices have risen sharply in almost all parts of the UK, fuelling concerns about affordability with consequent unwelcome effects on individuals and the economy," Ms Barker said.

She said house builders were at fault for "trickling-out" new homes in order to keep prices high, and she also criticised local planning authorities.

The interim review calculated that refusals for planning permissions for major housing developments went up from 15% in 1996-1999 to 25% in 2002.

Pierre Williams, of the House Builders Federation said: "There is a national need for housing to take precedent over parochial concerns, significant investment will be needed to turn the dream of sustainable communities into reality."

House builders maintain that they are already reacting to the need for cheaper, smaller housing.