It also downgraded its forecast for growth in 2011 to 1.4% from 1.5% and predicted that real disposable income will fall by £301 per person.
NIESR economist Ray Barrell, said: “The prospects for the housing market are very weak indeed over the next five years and that will weaken economic growth significantly. It will be the longest period of falling house prices that we have seen.”
Barrell added that falling house prices will have a knock on effect on household spending and hold back the economy over the next few years.
“There is very clear evidence that house prices affect savings and consumption. People spend more when houses prices are going up, and spend less when they are going down.”
NIESR said it would take until 2013 before the economy stopped falling short of its potential rate of growth and returned to pre-recession levels of output.
