In some areas of Burnley, house prices have fallen by half in the past 10 years. Here, property ownership makes you poorer. The result is a bitter struggle for regeneration funds that the hard right has exploited to win electoral success. Mark Leftly reports on a city staring into the abyss
For a gruff Burnley Football Club supporter, Simon Bennett has a surprisingly limp handshake. Perhaps it is a ploy to mask his anger. If so, it does not work. "In 1988 I bought my house for £8000," he says. "Then my house, and the area, deteriorated – £4000 would be the best offer I'd get now, if it had not already been bought for demolition by compulsory purchase order. Housing is what got me into politics."

Bennett is a leading campaigner for the far-right British National Party. He claims Asian communities receive the lion's share of the area's regeneration funding, while predominantly white areas are neglected. Bennett campaigned on this issue at last week's local elections, and some of the party's voters believe it was a contributing factor to last summer's race riots. The BNP achieved relative political success in the elections, and now has three seats on the council – the party's first in the UK for 10 years.

The white people of Burnley are not, by and large, racist. But, they are, by and large, poor, resentful and vulnerable to the BNP's message. The focus of this resentment is the abject condition of large chunks of the town's housing stock.

The House Builders Federation recently released statistics showing that the number of households in the UK exceeds the amount of housing available for the first time in recorded history.

The HBF calculates that 215,000 homes are needed each year for the next 20 to make up the shortfall. So it is perverse that 4000 private properties, mostly pre-1919 terraced houses, lie empty or derelict in Burnley. In the predominantly white areas of Burnley Wood and Accrington Road, up to half of all terraced homes are boarded up. It is not uncommon for environmental health warnings to be found slapped on these boards. The council plans to demolish 365 private properties in the areas at a cost of £7.5m.

The town's views of these plans are mixed. One former resident of Burnley Wood, who lived there until she was 16, says of plans to demolish parts of the area: "It makes me sick." Yet she has chosen not to reside in this drug-infested part of town for 20 years. Whereas Mrs Watson, the owner of a butcher's shop who has lived in Burnley Wood her entire life, says: "The whole area should be demolished and started from scratch."

Both agree that the council does not do enough for the district. Mike Cook, the council's head of regeneration, says its housing resources have declined year-on-year. "Burnley is more than 50% dependent on additional resources [for housing], such as the single regeneration budget," he says.

It is the allocation of SRB funding has been the cause of some of the greatest consternation. In a recent leaflet, the BNP claimed that the predominantly Asian area of Daneshouse will receive £16m of capital investment over the next five years compared with £12m for the rest of Burnley. Councillors dispute these figures, but concede that government regulations on the targeting of funding mean that the council has no choice but to spend much of its money in Daneshouse – an area that is one of the 5% most poverty-stricken in the country.

Walking around Daneshouse, there is little sign of the public dereliction that characterises Burnley Wood. Several housing blocks have been refurbished and as a result the area appears relatively affluent. But it is misleading. Burnley's strict spending limits have meant that the interiors of Daneshouse stock have not been improved. Muzaffar Ali, a local jeweller, says: "The exterior refurbishment is just for show. In Stoneyholme [part of the Daneshouse ward], 10 people may live inside two or three bedrooms."

We have not been able to keep pace with dereliction and abandonment

Steve Jackson, Burnley council housing unit

Residents in all areas blame the council for most of their housing woes. Steve Jackson, project manager of the council's housing needs and strategy unit, says simply: "We have not

been able to keep pace with dereliction and abandonment." Some landlords buy properties for as little as £1000, recoup their money quickly through rent and then forget about the property. Aghast at the crime and drugs surrounding them, owner-occupiers often abandon their properties when they realise that they are likely to be unsellable. The low demand leads to dereliction, and developers, Jackson argues, compare the risks of redevelopment unfavourably with other areas.

Jackson also believes that terraced housing is no longer a natural step for a first-time buyer. Barratt has been known to offer new-build houses on the market for £70,000-80,000 at its developments on the outskirts of Burnley for a £99 reservation deposit. Jackson says: "There's been quite a lot of new-build housing and prices for these are cheap."

He hopes salvation may lie in the proposed housing market renewal fund. Housing minister Lord Falconer has asked the Treasury to allocate £8bn for the fund, and Burnley hopes to receive £200m from this pot of gold. The council would use this money to demolish homes, refurbish other housing and attempt to attract builders in to reconstruct the communities.

The council is uncertain of what to replace bulldozed terraced housing with. Councillor Stephen Wolski, Burnley cabinet member for regeneration, says that he hopes to attract industry and commerce development: "We're going through a sea-change of views in Burnley, and the semi-skilled industries are going."

Council indecision does not end there. A £50,000 study into the possibility of piloting an urban regeneration company in Burnley Wood has not received full council backing. Wolski believes that a URC that would ultimately provide cheap mortgages for cheap property that bringing extra investment into the equation. As such, the hoped-for knock-on effect of refurbishment would not be achieved.

Faced with such entrenched problems, many are looking to the BNP for simple answers. But its message is no clearer: Bennett agrees that demolition is inevitable, but he is sketchy on what he would do with the land afterwards. "Burnley Wood wouldn't go amiss of a few new facilities, like a community centre," he ventures. However, he is certain of one thing: if it had its way, the BNP would refuse planning permission for mosques. "We would discourage any addition to the Asian community," he says. In truth, the BNP has no more idea of what Burnley needs than anyone else.