Places in the North and Midlands, where the government has spent billions attempting to revive the housing market, are being hit hard by the recession and may struggle to recover.

Housing Market Renewal Pathfinders were set up in 2003 to restore confidence in areas where demand had collapsed, homes were abandoned, shops boarded up and crime rife.

But because these areas are more vulnerable to the effects of the recession, progress made to lift local economies, rebuild communities and encourage developers to build new homes could be slowed.

An Audit Commission review into the progress of pathfinders, says that the recession could not have come at a worse time for them. Six years into what was envisaged to be a 10-15 year regeneration programme, there is still much to do to ensure pathfinders have a lasting impact and they can ill afford delays.

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More than 7,000 homes were built or converted in pathfinder areas in 2007/08 - as many in one year as in the previous five. But as developers now retreat from high risk areas, pathfinders will have to work harder than most to convince them to stay.

Despite the challenges ahead, the Audit Commission says that there are opportunities for pathfinders. They can take advantage of lower land prices, put in place community and physical infrastructure and make sure they are poised to make the most of the eventual upturn.

Most pathfinders are considering their options and looking at a variety of ways to beat the recession. Some are switching their focus from new build to refurbishment, concentrating on providing high priority family homes over apartment blocks or accelerating land and demolition deals.

Audit Commission Chief Executive Steve Bundred said: "The recession will prove a very testing time for pathfinders. But they have built strong foundations over the last six years and are well placed to weather the economic storm. Pathfinders must work closely with developers, re-focus their targets and keep a watchful eye on efficiency and value for money if they are to limit any potential damage and make sure they are able to make the most of the post-recession world."

(CD/JM)