The government is encouraging housing associations to buy cut-price developments from ailing housebuilders, in an indication that it is struggling to meet its annual development targets.

The Housing Corporation has asked leading London associations to bid for grants by next week to fund the purchase of completed developments. Three – Hyde Housing Association, Southern Housing Group and Circle Anglia – have said they are discussing this.

Dale Meredith, group development director for Southern, said: “Some developers are starting to get cold feet about whether they’ll be able to sell units.” House prices fell nearly £4,000 in the last two months of 2007 (see graph).

Meredith added: “There’s an opportunistic element to this from the corporation.”

Derek Joseph, managing director of consultant Tribal Treasury Services, said: “Lots of developers are asking if associations want to buy sites, but at the moment they’re trying to sell the crap.”

Ian Hagger, development director for Hyde, said his association was likely to bid for a grant to buy about 35 more units.

It has already bought 51 from Barratt at below-market value at Leybourne Park in Tonbridge, Kent, because the housebuilder was struggling to sell them, he said. Barratt had intended for just 111 (30%) of the 256 to be kept for affordable housing, but the deal raised this to 44%.

The news has raised speculation that the corporation is struggling to hit its London development targets. Haggar said: “We’ve been asked to propose deals that can be completed before 31 March.”

Steve Douglas, Housing Corporation chief executive, denied there was any “specific initiative” to take advantage of the market downturn. He added: “We remain confident our national targets will be hit.”