It said the number of homes on the market was close to record lows, partly because of low rates of construction.
Nevertheless, its latest figures show that annual house price inflation has fallen, from 5.6% in August to 5.3% in September.
Between August and September, prices rose by just 0.3%, half the 0.6% rise in the previous month.
The average price of a house or flat in the UK is now Â£206,015, it said.
Even though demand for homes has fallen, the number of new properties coming on to the market has also gone down.
The Nationwide's chief economist, Robert Gardner, said housebuilders should have more confidence that people will want to buy any homes they build.
And he said they have plenty of sites where they could begin construction.
"The major housebuilders appear to have capacity to expand output, with most reporting land banks that could support around five years' worth of construction at current rates of building activity."
Government figures show that in the last year, 139,000 new houses were completed in England. This compares to the need for 225,000 new homes a year, said Mr Gardner.
"The number of new homes built in England has picked up, but is still not sufficient to keep up with the expected increase in the population," he said.
The industry responded by saying that there had already been a huge increase in supply, and it was planning to deliver even more.
"House builders have massively increased output over the past few years and continue to recruit the people and buy the land necessary to deliver even more desperately needed homes," said Stewart Baseley. executive chairman of the Home Builders Federation (HBF).
"Reversing decades of under supply requires government to continue to implement pro development policies and lenders to ensure buyers can get a mortgage," he told the BBC.
But Mr Gardner said that in particular, not enough homes are being built in London and its suburbs. Over the last year, the housing stock in the capital has risen by 2.9%, whereas a rise of 4.3% could have been expected, he added.
Where can I afford to live?

The Fox Valley shopping centre at Stocksbridge, north Sheffield, started construction more than two years ago.
It has been built on the 28-acre former Outokumpu steelworks site.
The development, which features a large mural by local artist Pete McKee, was opened by the actress Joanna Lumley.
McKee has also collaborated on a large bronze statue called Granddad Fox at the site.
Samuel Fox founded a wireworks in Stocksbridge in 1842 and the name has been adapted by the new centre.
The artworks feature umbrellas as the site was a base for their manufacture.
More than 100 houses are also being built on a neighbouring site.
The site close to the A616 Stocksbridge bypass has been developed by Dransfield Properties Ltd, with a further phase to be opened in September.
Housebuilders should get on and build more houses, the Nationwide Building Society has declared.
[NEXT_CONCEPT]
A £50m shopping centre has opened on the site of a former steelworks creating up to 900 jobs, according to the developers.