House prices in London are costing the economy more than £1 billion a year, according to a new report.

The study by business group London First and consultancy firm CEBR found that soaring prices are preventing thousands of jobs from being created, and London residents are putting most of their money into buying and renting properties instead of spending cash in stores.

According to the Office for National Statistics (ONS), house prices in the capital are now 46% above their pre-crisis peak, with an average of £525,000.

London First and the CEBR found that businesses were having to pay workers more to help attract the best talent and help current staff cope better with living expenses. That is leaving businesses with less money to take on new positions.

The report also found that as much as £2.7bn could have been spent elsewhere in 2015, had house prices stayed in line with inflation over the past 10 years. The study suggested that this amount of extra consumer spending could have created 11,000 jobs and boosted the economy by £1bn.

“The housing crisis is making it difficult to attract and retain staff in retail, care and sales occupations,” the report said. “Even if they spend a limited amount on other goods and services, they are effectively priced out of living independently in the capital. They need to co-habit with partners, friends or family, or be eligible for social housing in the capital.”

Baroness Jo Valentine, chief executive of London First, said: “This needless housing shortage needs urgent action. If we carry on as things stand, in 10 years’ time London will be a no-go zone for employees across sectors and at almost all levels.

“I want the next mayor of London to wake up each morning thinking about how to increase housebuilding — because only doubling our current levels of housebuilding to 50,000 a year will we solve this crisis.”