Britain faces a housing crisis in the wake of the pandemic as confusion about planning rules and shortages of staff undermine government targets to build 300,000 homes a year, according to a House of Lords committee.

A retreat from housebuilding by smaller companies must be tackled by ministers to reduce the shortage of homes, the cross-party group of peers said.

“Too many people currently live in expensive, unsuitable and poor-quality homes, and housing supply needs to be increased now to tackle the housing crisis,” the committee said in its report, titled Meeting Housing Demand.

The housing secretary, Michael Gove, is expected to set out the government’s plans to kickstart housebuilding after the industry suffered the twin blows of Brexit, which reduced the amount of skilled labour available, and the upheaval caused by the pandemic.

Gove has indicated he will encourage employment and housing in the regions as part of the government’s levelling up agenda, though this is likely to be a long-term project.

Baroness Neville-Rolfe, chair of the Lords’ built environment committee, said: “The government’s ambitious target of 300,000 new homes a year will only be met if it takes action to remove the barriers for housebuilders, particularly for SMEs, which 35 years ago built 39% of new homes but now build just 10%.”

The committee was critical of a U-turn over proposed reforms to planning rules that would have divided areas into zones, some of which are reserved for conservation and others that have few or no rules holding back developers.

UK construction activity fell to a seven-month low in November, as a broad-based slowdown suggested the sector is likely to weigh on growth in the final three months of this year.

Housebuilding, which has been the main driver of growth in recent years, slipped behind commercial property last month, according to survey compiler Markit, while civil engineering activity also eased.

The Markit/CIPS construction Purchasing Managers’ Index (PMI) fell to 55.3 in November, from 58.8 in October.

While activity remained well above the 50 level that signals an expansion, it was the slowest pace of growth since April and below economists’ expectations for a slight easing to 58.5.

Markit noted that aside from April’s pre-election slowdown, overall output was the weakest in more than two years, and the disappointing data saw the pound slip against the euro and dollar on Wednesday morning.

However, sterling quickly clawed back its losses against the single currency after weaker than expected inflation data in the eurozone.