The housing crisis could profoundly change Britain’s electoral politics, rallying support for the left but also potentially boosting the far right, Britain’s former top civil servant has said.

Bob Kerslake, the head of the civil service under David Cameron, told the Guardian the government’s failure to build enough cheap social housing and public anger over housebuilders’ bonuses means “more people feeling like they are losing out from the UK economy”.

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He said it was wrong that so many young people felt they would never be able to afford to buy a home and that the number of new council houses being built needed to increase ten-fold to account for a quarter of all new builds.

Lord Kerslake is a cross-bench peer and was permanent secretary at the department of communities and local government from 2010 to 2015, overseeing housing policy. He was also head of the civil service from 2012 to 2015. He said Theresa May had made statements showing she understands there is a crisis, but she had not grasped the scale of the response required.

“Unless they ramp it up it’s not going to be enough,” he said.

The UK is 110,000 new homes short of the annual target of 300,000 set by the chancellor Philip Hammond in November’s budget to be achieved by the mid-2020s. New homes for social rent - the cheapest rents charged for council housing - are only being built at the rate of 6,800 a year.

Facebook Twitter Pinterest Campaigners protest against the transfer of council estates in north London to private developers. Photograph: Alamy

Describing the potential impact of the housing crisis on voters, Kerslake said: “Some might go to the far right. It could be exploited against migrants and others, and that has happened. There’s an equal chance they will become organised and vociferous within the mainstream political system, I would guess towards the left.”

The political impact is magnified because of its disproportionate effect on younger voters. Only 38% of 25 to 34-year-olds are homeowners, down from 57% 10 years ago. Younger people historically vote less than their elders, but the fact that so few can afford to buy could energise a larger turnout in future elections.

Kerslake said that while he led the civil service, government policies tended to be assessed on how they would affect older voters, because they voted more and they were more likely to vote Conservative.

“This year’s election changed that,” he said. “For the first time you saw young people being organised and exercising their vote in a very defined direction. That shifted all the political parties. A consequence of not addressing this issue will be more people feeling like they are losing out from the UK economy.

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“There were a few at the top of the Conservative party who saw social housing as toxic and some at a very senior level thought that it was synonymous with sink estates and some saw it as synonymous with Labour voters. Either way, it wasn’t very popular.”

His comments come ahead of next year’s green paper on social housing announced by the communities secretary, Sajid Javid, following the Grenfell Tower fire. It is expected to address issues including the quality of social housing and tenants’ rights. Announcing the policy review, Javid said: “The housing market in this country has been crippled by a long-term failure to match supply and demand.”

Kerslake said it was inexplicable that May’s government had not lifted limits on councils borrowing to build more homes, while they are offered cheap loans to invest in commercial property.

“If I’m a council in south-east England and want to borrow money to buy a shopping centre in Scotland, I could,” he said. “If I want to borrow to build housing I have to do that within a cap. There’s no rational argument for it. The resistance is in the Treasury. It is simply a worry about additional spend going on the public sector borrowing requirement.”

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Housing has become the most important policy issue at Westminster after Brexit, he said, because it “symbolises some of the big divisions in this country”.

“It symbolises the generational divide. We know that so-called baby-boomers have half the assets of the country and millennials have nearer 2%, and a big part of that is housing. We know there are huge income divides, the Grenfell Tower fire highlighted that. We also know there are big geographic differences. Whilst London property prices are 50% above the pre-crash price level, some parts of the country haven’t even returned to those levels.”

The political toxicity of the housing crisis intensified following the outrage earlier this month over the £110m bonus scheme for Jeff Fairburn, the chief executive of the volume housebuilder Persimmon.

The company’s share price had soared partly because of the taxpayer-funded help-to-buy scheme, which was extended by a further £10bn this year. Kerslake has proposed that if bosses are paid such “indefensible” bonuses, their companies should not be able to sell homes to buyers using the subsidy.

He also thinks their access to the scheme should depend on their commitment to building affordable housing, and investing in training workers in construction skills. He predicts a looming problem with around 500,000 construction workers expected to retire in the next five years and many of the 200,000 from the EU expected to go back to their home countries as a result of Brexit.

“We are risk on the labour supply,” he said. “We face a major investment need in skills at a time when we are trying to build more.”