George Osborne has warned that Britain's housing shortage is likely to persist for at least another decade.

The Chancellor insisted the coalition's controversial planning shake-up was having a "positive" effect, and played down fears of a property bubble.

But he admitted that more still needed to be done to overcome the "historic" imbalance between supply and demand in the market.

The comments came as Mr Osborne gave evidence to the Lords Economic Affairs Committee.

He gave an optimistic assessment of the UK's prospects, saying that the fledgling recovery was "sustainable".

But Mr Osborne also expressed concerns about international risks, including "weakness in some of the European economies", issues in emerging economies, and uncertainty about America's fortunes.

"I think the recovery is under way... but there is still much to do," he told the peers.

"Some of the US data in the last couple of weeks has been a little bit soft."

Mr Osborne defended the Government's Help to Buy scheme, which some have complained is stoking a housing boom in London and the South East by allowing people to access substantial loans without large deposits.

He pointed out that house prices had fallen "quite considerably" during the recession, and were still significantly below their peak. The Bank of England had also been given powers to cool the market if necessary, he added.

But the Chancellor conceded that the underlying mismatch between demand for homes and the supply is far from being addressed.

"I think the planning reforms are clearly working. You see planning applications up, planning approvals up, and the percentage of planning approvals up," he said.

"It is having I think a positive effect on creating new homes and those homes are being built in appropriate places.

"Across the board, we are pulling a lot of levers. But this is a historic problem...

"I don't pretend this problem is going to be solved in a few months or a couple of years.

"This is a big challenge for our country. We have got to build more homes."

He went on: "I imagine if we were to assemble again in 10 years' time we would still be talking about the challenge of making sure that our housing supply keeps up with demand."

Liberal Democrat Business Secretary Vince Cable is among those who have voiced reservations about the impact of Help to Buy.

But Mr Osborne said: "We are recovering from a property crash. Am I someone who says we should be vigilant about this? Absolutely we should be vigilant...

"As is clear from (the Bank of England's) reports, they do not at the moment see what you would describe as a bubble, but they are vigilant."

The chancellor said the economic upturn had so far been driven by consumer spending, but insisted it was not a "debt fuelled recovery" because people were spending out of income.

He said the Government was now hoping that businesses would step in and invest to push UK plc forward.

Mr Osborne also expressed passionate support for the contentious "fracking" mining technique.

However, he admitted that even if the gas under Britain was accessed it was unlikely to drive down prices by 40% - as it has in the US.

"I think it will have an impact (on prices)," he said. "I hope it will have a significant impact...

"I think in the UK there are some differences with the US. We are not as closed an energy economy as the US is.

"So I think we more closely track the worldwide gas price and the US does and we have less ability to detach ourselves from the worldwide gas price."

Shadow housing minister Emma Reynolds said: "George Osborne has admitted that we face a housing shortage but appears to be in complete denial about this out-of-touch Government's failure to tackle it.

"Under this government the number of homes built has fallen to their lowest levels in peacetime since the 1920s.

"You can't deal with the cost-of-living crisis without building more homes. That's why Labour has committed to increasing house building to at least 200,000 homes a year by 2020."