Rises of up to 31% add millions to cost for councils of buying properties for demolition
The nine market renewal pathfinders could be forced to tear up their business plans as rocketing house prices are adding millions of pounds to their costs.

Land Registry figures for councils in pathfinder areas, compiled by Housing Today, show that house prices have risen by an average of 20% over the past year (see "Rising prices", left).

If each of the 1700 homes the Manchester Salford pathfinder plans to buy and demolish cost the local average, the programme would cost nearly £28m more than originally thought.

Experts have put the soaring costs down to speculation by developers keen to profit from the pathfinders' work, and tenants exercising their right to buy (HT 16 January, page 12).

Burnley council has seen the highest rise, at 31%. Mike Cooke, the council's community cohesion manager, said: "It will certainly mean we have to look again at projected outcomes, such as how many properties are demolished and when."

Burnley, part of the Elevate East Lancashire pathfinder, saw prices for a terraced house soar from an average of £20,488 in the third quarter of 2002 to £29,874 just 12 months later.

However, transaction numbers fell from 721 sales to 567 over the same period, which could mean speculators have been buying up homes at inflated prices to push up costs.

This would force Elevate to pay more when it purchases properties for demolition.

But Jean Greenall, chair of the Piccadilly Area Residents Association in Burnley, said: "It depends which area you're in. Some properties will always have low prices."

If the trend continues, pathfinders could pull out of maintenance programmes for privately owned homes, concentrating instead on demolishing empty properties. Brendan Nevin, chief executive of the North Staffordshire pathfinder and one of the architects of the market renewal initiative, said: "If prices carry on rising, owners would have enough equity to do maintenance themselves."

The ODPM is understood to be concerned about the impact of rising costs for both homes and land across the nine pathfinders.

A Whitehall source said: "These figures present a dilemma for policy makers, who will be facing rising costs. There is a lot of land assembly and house buying required, so it is likely that there will be significant cost issues faced by councils as a result of this."

The pathfinders have a £500m pot to spilt between them for the programme's first three years, announced in last year's Communities Plan. They are hoping that further funding will be announced in this summer's comprehensive spending review.

An ODPM spokeswoman said: "Each pathfinder is actively monitoring and evaluating changes of house price across their own areas, and will take these changes into consideration as they put together their strategic plans and begin to implement their programmes.

"While they need to be taken into account, we do not anticipate that house price changes will hamper the delivery of the housing market renewal programmes."