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The difficulties now facing major housebuilder Vistry are unlikely to be an isolated business problem. They are another indication that the housing market is beginning to collide with a shrinking economy.

For decades, housebuilding has depended upon one simple assumption – that tomorrow’s buyers will have more spending power than today’s. That assumption no longer holds.

In a shrinking economy, incomes come under pressure, secure employment becomes less common, banks become more cautious and households become less willing to take on large debts. Every one of these trends reduces demand for new housing.

The result is straightforward. Developers still face rising costs for land, materials, labour and finance, but fewer buyers can afford prices high enough to cover those costs. The response is familiar. Prices are discounted, profits disappear, building slows and companies cut investment. Eventually some fail altogether.

This is not simply a housing problem. It is the inevitable consequence of trying to operate a growth-based housing market in a non-growth economy.

The effects spread much further. Estate agents, solicitors, surveyors, mortgage lenders, furniture retailers, DIY stores, removal firms and countless other businesses all depend upon a steady flow of house sales. As transactions fall, demand falls throughout the entire housing economy.

At the same time, people begin adapting.

Instead of buying larger homes, families share existing ones. Older relatives remain with younger generations. Empty rooms are occupied. Large houses are divided into smaller units. Buildings that once stood empty are brought back into use. Existing homes are repaired and altered rather than replaced by new ones.

This is not a new idea. It is how housing operated for much of the nineteenth century, before the era of mass mortgages and speculative housebuilding.

The modern mortgage market itself may gradually contract. For most of history, people did not borrow thirty or forty years of future income from banks in order to obtain a home. Housing was often financed through family savings, local investment, building societies rooted in their communities, private agreements and gradual self-building as resources became available.

A shrinking economy may well push Britain back towards these more local and less debt-dependent arrangements. The house becomes a place to live rather than a financial asset whose value is expected to rise indefinitely.

This is where localism becomes important.

A locality that is increasingly self-reliant needs homes that support stable communities, not speculative investment. Local builders can concentrate on adapting existing buildings. Local skills become more valuable than large national developers. Empty properties become community assets rather than opportunities for speculation.

As the national housing market contracts, the importance of local housing solutions will grow. The transition may not be easy, but it is likely to be unavoidable.

The housing market was built for an expanding economy. The economy is now shrinking and housing will have to change with it.

The age of debt-fuelled expansion is now giving way to something much older – locally financed, locally adapted and locally owned housing, rooted in the needs of the community rather than the demands of the financial markets.