Hallelujah! It's no longer just young Londoners without ready access to the Bank of Mum and Dad who are being priced out of the housing market. According to Royal Institution of Chartered Surveyors (Rics) figures this morning, house price madness is spreading throughout the country. Its forecast for house price growth across Britain has been nudged up two points to 8%, and the average British house price has jumped to £254,000 from £194,000 five years ago. It is the capital, of course, where estate agents are most gripped by this fever: some London boroughs have reported annual house price increases of 30%. No wonder the growing army of estate agents represents such a large chunk of Britain's rising employment figures.

All too many people know that George Osborne has fallen back on previous unsustainable models of economic growth to stoke what commentators call a pre-election "feelgood factor". The mismatch between stagnating wages and surging house prices is self-evident. House building has collapsed to 1920s levels: last year, there were 122,590 house building starts, about half the level that would meet housing need. But this is too often whispered privately, because the sorts of young people who suffer the most are not editing national newspapers. Political leaders are gripped by euphoria. "Why are people flocking to Barnet and why are house prices going up?" Tom Davey, Tory-run Barnet council's lead member for housing, boasted recently. "It's because people want to live here." When it was suggested that these were the ones who can afford it, his retort was revealing: "And they're the people we want!"

When this madness ends – and leaves an inevitably painful national hangover – is a guessing game. But something is going to have to give, because it is socially – never mind economically – unsustainable. Thirty years ago, a first-time buyer needed 12% of their income for a deposit, but it is now up to more than 80%. Those snapping up properties tend to come from homes affluent enough to support them: indeed, two-thirds of first-time buyers now have to rely on their parents. According to HSBC research, 57% of Britons aged between 25 and 36 do not own a home, and a quarter of those never expect to.

There is no "feelgood factor" for those left out. Young people in particular face being driven into an unregulated private landlord sector where rents are surging. About one in four London households now receive housing benefit, and most new claimants are actually in work. Tenancy agreements can be insecure, and rent increases can be arbitrary, forcing many to jump from home to home. With ex-graduates already saddled with debt they are never going to pay off, many young people have been granted lifetime membership to what Labour wonks call "the squeezed middle".

It is left to the party-poopers to suggest alternatives. Lifting the borrowing cap on councils to let them build – and moving our accountancy rules in line with EU countries so it does not add to net public sector debt – would kickstart our long-suffering construction sector, bringing down the housing benefit bill and creating affordable homes. We could learn from the experience of Germany with long-term secure tenancy agreements protected from above-inflation rises.

But few are brave enough to puncture the religion of property ownership. As home ownership continues to fall – now at about 64%, down from its 2005 peak of 71% – they may well have to. In the meantime, the hysteria will continue – and just long enough, Osborne hopes, to propel the Conservatives to victory.