Lib Dem business secretary says problem has been fuelled by chancellor’s Help to Buy and Right to Buy policies

Vince Cable has warned of deepening inequality between social classes and the generations because of a fundamental crisis in the housing market fuelled by chancellor George Osborne’s Help to Buy and Right to Buy policies.

The Lib Dem business secretary said the crux of the problem was a shortage of social housing, which the government had failed to replace while offering people incentives to buy their council homes.

The party’s conference in Glasgow passed a motion to give local authorities the ability to suspend Right to Buy in their areas, on the grounds that council tenants were being given huge incentives to purchase their homes without enough replacement of social housing stock.

“The Right to Buy policy, without replacement, has done enormous damage and we have to stop that,” Cable said as he spoke in favour of the motion.

He has frequently warned of the dangers of Help to Buy fuelling a house price bubble, despite it being a coalition policy approved by the Liberal Democrats.

As the conference approved a motion in favour of more social housing as part of a pledge to build 300,000 homes a year, Cable backed the Labour proposal for a Help to Build scheme to increase supply.

“Mr Osborne has this policy called Help to Buy which doesn’t actually help you to buy because it drives up the price and makes it less affordable,” he said. “What we really need is help to build.”

Cable suggested “cynical Tories” did not mind that young and middle-aged people, from nurses to shop assistants, were being frozen out of the housing market, because their core, traditional voters were older homeowners.

However, he said older people were affected when they saw their children and grandchildren unable to afford their own homes and struggling on insecure rental contracts. He said: “For them, this is becoming insufferable. For all the incentives, owner occupation is falling because people can’t afford it.”

The business secretary said the country was dealing with a fundamental crisis. “Large numbers of people are really suffering and we are creating enormous inequalities through the property market, between social class and between generations,” he said.

His position was echoed by the Lib Dem president, Tim Farron, who said the UK’s housing market “robs us all of opportunity, but especially it robs the under-40s”.

He said: “Children growing up living in unstable rents, bumped from school to school. Communities broken up, segregated, socially decimated. Businesses struggling to find workers, workers struggling to pay rent. Lonely, sicker, older people. London built for foreign investors, not the people who work there. Is this the kind of country we want to create? Poorer health, a homeless generation, polarising wealth?”

David Cameron has promised the Conservatives would offer 100,000 new starter homes with a 20% discount for the under-40s but industry critics point out that the coalition has not delivered anywhere near enough new housing and question where these homes would come from.

The Bank of England has the power to rein in the Help to Buy programme, which offers people government guarantees to help them purchase a home worth up to £600,000 with as little as a 5% deposit.

This month the Bank of England governor, Mark Carney, said the bank’s experts believed the scheme “does not pose material risks to financial stability”.