Up to 140,000 extra new homes need to be built each year if housing supply is to match demand, a Treasury-sponsored report says.

Bank of England Monetary Policy Committee member Kate Barker was asked by Chancellor Gordon Brown last year to examine housing supply and how it contributed to the wild swings in house prices that have plagued the country for so long.

Her final report, published just hours ahead of the budget on Wednesday, recommends continued reform of the planning system which she says is holding up new construction.

She said that between 70,000 and 120,000 additional private sector homes would be required each year on top of the current level of building (140,000 starts and 125,000 completions) to meet current levels of demand and reduce the level of house price inflation towards the European Union average.

And an increase of between 17,000 and 23,000 social housing units is required each year to meet the backlog of housing needs amongst the most vulnerable in society, requiring additional public and private sector investment of between 1.2 and 1.6 billion pounds.

In order to facilitate this, she called for planning bodies to take greater account of market signals such as prices, demand and affordability when setting housing targets and allocating land.

She recommended that planning authorities allocate additional fallow land, which can be quickly released for development when there is unexpectedly high demand and the creation of appropriate incentives for local authorities to support development, allowing them to keep council tax revenues from additional housing for a temporary period.