The striking thing about the current sharp downturn in the housing market - apart from the fact that the banking crisis that caused it has reached a level of frenzy that has pushed house prices off the front pages – is its effect on activity. This has dived much more than prices – as the level of housebuilding illustrates dramatically.

The Royal Institution of Chartered Surveyors (Rics) estimates that only 66,220 new homes have been built so far this year, a significant proportion of them before the credit crunch reached a new level of intensity in the spring. One shudders to think what the even greater intensity of recent days will mean – though last week’s 0.5% cut in the bank rate should help a bit. Already, fewer than 25,000 new houses are being built each quarter, and Rics predicts that less than 100,000 will be put up next year – the lowest figure since 1946, and less than half the number required to meet the government’s target of 2m new homes by 2016 and 3m a few years later.

Back in 2004, in the heady days when rising house prices were the worry, Kate Barker’s review of housing for the Treasury estimated that 200,000 new homes were needed each year to reduce the rise in “real” (after-inflation) prices from nearly 3% a year to 1.8% – roughly in line with the growth of earnings. To get it down further, to an annual 1.1%, an additional 50,000 would be needed, making a total of roughly 250,000 a year.

Times have changed dramatically. Next year’s housebuilding will be barely a third of Barker’s bigger figure. Nobody talks about house prices rising any more – but will a shortage of new homes mean that when things eventually turn, bust will turn into a powerful house-price boom?

It has before, and may do so again, but Simon Rubinsohn, chief economist at Rics, urges caution. It will take time – perhaps an unusually long time – for confidence to return. The banks’ capacity to lend has been severely curtailed, not least by the disappearance of the independent mortgage bank.

In addition, we have probably had an exaggerated view of housing supply in recent years. What ministers happily trumpeted as new family homes were often city-centre flats purpose-built for buy-to-let investors. Many of those will be a drag on the market for years. + home.economics@sunday-times.co.uk

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers