In its report, Unfreezing the housing market, the bosses' lobby group says that there can be no economic recovery without a well-functioning housing market.
According to the CBI, the stagnation in house sales accounted for around a third of the 6% drop in GDP during the recession, while the number of first-time buyers fell from a peak of 167,400 in 2001 to 36,200 in 2011.
The CBI is calling on the government to help first-time buyers to get the market moving in the short term and further planning reform to promote housebuilding in the longer term.
Short-term recommendations include: introducing a mortgage indemnity guarantee (MIG) insurance scheme to enable first-time buyers to take out low-deposit mortgages; and allowing them to access pension savings to boost their deposits.
Recommendations for the longer-term include reducing the regulatory drag on housebuilders, making it easier to convert buildings from business to residential use, and reviewing stamp duty.
CBI director-general John Cridland said: "In the short-term, boosting activity in the housing market and construction sector could be a major game-changer for growth. Housing makes a significant direct contribution to economic output and job creation, and also has a big impact on business and consumer confidence and spending.
"Despite five million people languishing on waiting lists because of the housing shortage, house building is at its lowest peacetime level for 90 years. A quarter of a million new homes are needed each year for at least the next twenty years to make up the shortfall.
"So we're also urging the government to deliver a comprehensive, long-term strategy to tackle the structural supply and demand failures in the housing market.
"This must include planning incentives to support housing developments, reducing the regulatory drag on house building, and, in time, reviewing stamp duty.
"These, along with the other measures outlined in our report, will bolster a well-functioning and sustainable housing market as a key feature of the UK's long-term economic growth."
The CBI’s action plan for housing
• Support first-time buyers by enabling low-deposit mortgages backed by MIG insurance schemes. This would be provided on a risk-sharing basis by mortgage providers and house builders, with a possible role for the Government in providing tail-risk guarantees
• Allow first-time buyers who have pension savings to boost their mortgage deposits by borrowing a percentage of their own pension pot at a low cost, to be paid back during their working life
• Support existing homeowners wanting to move house with special mortgage products designed for homeowners in negative equity
• Ensure the availability of development finance to small and medium-sized house builders
• Implement planning rule changes for business to residential conversions, and consult on broader "change of use" rules
• Ensure that the national planning policy framework (NPPF) retains its strong pro-growth thread in order to build more homes
• Reduce the burden of national and local regulatory drag on house building
• Ensure that financial regulatory reform does not restrict the availability of mortgages
• Encourage people to save from the point that they enter employment
• Review stamp duty, with a view to making it more progressive
• Ensure that the government's housing and sustainability objectives are aligned.