The space race is on as planners report a surge in homeowners converting space and extending upwards, downwards and outwards to create new rooms instead of selling and moving to larger properties.

In the last quarter of 2002, local councils received more than 75,000 domestic planning applications — 13% higher than in the same period in 2001. Most were applications to extend a house or flat. The increase is partly due to uncertainty about the economic climate. Owners are worried about the time it will take to sell their house and the tens of thousands of pounds it costs to move once stamp duty and estate agent and legal fees have been paid.

Then, of course, there’s the price of a larger home. When you’ve done the sums, you could easily find that adding to the capital value of your home with an extension is better value for money than trading up.

Freelance television producer John Kelleher certainly thought so. Last year, he added a loft to his terraced home in Wimbledon Park, southwest London, to create a fourth bedroom and second bathroom.

He and his wife Diane, a journalist, hired loft specialists to create a rear dormer extension, avoiding the need for planning permission, although the couple had to negotiate party-wall agreements with their neighbours. The work, including redecorating areas disrupted by the building work, cost £45,000. But Kelleher says it paid for itself by raising their home’s value from £400,000 to £450,000.

Figures from the Woolwich building society show the average cost of moving into a property valued at £500,000 is more than £23,500; moving into one valued at £1m will cost £56,000. In London, where prices are high, extending makes financial sense. “If you have to spend as much as £50,000 or £60,000 to move house, why not convert your loft instead?” suggests Keith Rigby, of west London agent Leslie Marsh.

Outside the capital, builders’ costs will be lower and house prices cheaper, so it may take longer to recoup your expenditure. In Yorkshire, conversion specialists say it costs £25,000 to make a roof space habitable. Bryan Jaram, of agent Jackson-Stops & Staff in York, says: “Providing the space is used for a bedroom and perhaps a bathroom, you should add enough to the value of your home immediately to cover the cost.”

In Cardiff, the typical loft conversion costs £20,000, which, if property prices rise 5% a year, may take three years to recover, according to local agents. A £20,000 extension in Plymouth, where most terraced houses are much cheaper, may take five years to recoup.

But in Manchester and Edinburgh, which like London and York have relatively high property prices, agents say an outlay of £30,000 on a loft would be recovered within a year.

Top tips

• Don’t over-develop — if your street is known for three- or four-bedroom houses, a big extension may make your home ugly and out of keeping

• Don’t ignore planning permission or buildings regulations. If you haven’t got them, you may be unable to sell your home in the future

Explore Property

• Buying & Selling

• New Homes

• Overseas

• Interiors

• Investment

• Gardens

• Cool In Your Code

• Specials

• First-time buyer

Times recommends

• Second homes: credit crunch casualty or money-spinner?
• How I built my own sliding house
• Top 10 incentives for house buyers