It is predicted that less than 80,000 new properties will be built, less than half the government's target and the lowest figures since 1924.
Most new construction is likely to be in the public sector especially social housing and schools. Developers expect private houses will be slow to sell because of the economic downturn.
The economic crisis has meant that potential buyers for new homes have encountered increasing problems obtaining a mortgage, but some house builders are so desperate to sell that they are now offering to pay potential buyers' stamp duty, moving costs and legal fees.
For those with an eye for a bargain, an architect in Scotland is hoping to offer kit homes for £40,000. Andrew Stoane hopes to have a prototype ready for June this year and a pilot scheme of 10 to 15 houses by the end of the year.
He said he was inspired to create the kit by the financial crisis. His company, Anabo, will buy plots, obtain planning permission, lay building foundations and construct houses from pre-fabricated components.
Property buyers would then visit Anabo's website to find a location, order their house, configure it to their own requirements and arrange the finance. Within ten days, the house should be ready for occupation.
The total cost of a home will be £1000 per square metre. Stoane plans to offer a range of designs, including a 40 square metre pod for £40,000 aimed at first-time buyers, and a 120 square metre family home for £120,000.