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The government needs to increase a hundred-fold its programme of buying up unsold homes to avoid a catastrophic collapse in the housing market, according to the Liberal Democrats Treasury spokesman.

Liberal Democrat Vince Cable told the Institute of Fiscal Studies the government is burying its head in the sand over the scale of the housing collapse and should be prepared to borrow extra money to prop up the market.

Cable said the government鈥檚 current plan to divert 拢200m of Housing Corporation grant to private builders in order to turn unsold homes into social housing is 鈥減athetically small鈥�.

He said: 鈥淚t should be on a much bigger scale, perhaps 100 times bigger. Social landlords would be given financial freedom to buy up un-sellable property at a deep discount to meet local housing need.

鈥淭he stock of social housing has been heavily depleted after two decades of 鈥榬ight to buy鈥� and it could be replenished, helping with the homelessness problem which will follow the surge in repossessions.

鈥淭he government is currently in a state of denial about the economy. It does not seem to realise that a recession is looming combined with painful inflation and that the housing market is in a state of collapse, dragging down construction companies and mortgage lending banks as well as, potentially, millions of homebuyers.鈥�

The government last week announced further measures to try to increase the build rate of new homes, including giving more Housing Corporation grant to builders up front before homes are finished, to help cash flow. It is also expected to announce further medium- and long-term measures in the next few weeks.