Villages in the style of the Prince of Wales's Poundbury in Dorset must be created around market towns to help to resolve the housing shortage and bolster the rural economy, a government review will conclude this week.

The study, commissioned by Gordon Brown to identify solutions to affordable rural living, will propose the expansion of market towns with structured communities instead of the urban sprawl of residential estates.

It will identify Poundbury, on the edge of Dorchester, as a possible blueprint with its own shops, community facilities, workshops and green spaces.

The report will also recommend that in the most popular holiday villages, where the number of second homes threatens to undermine local services such as the village school, councils should have powers to limit the number of weekend retreats.

It concludes that, although second-home ownership is not the main hurdle to people getting on to the property ladder, the scheme should be tried in some national park areas, such as the village of Troutbeck in the Lake District, where almost half of the houses are used for holidays.

Matthew Taylor, the Liberal Democrat MP for Truro & St Austell and the author of the report, is to recommend that a second trial should be allowed in which potential second-home buyers would have to seek change of use planning permission. The Prime Minister invited Mr Taylor to conduct the review to see how up to 3 million homes could be built in the countryside. The proposals will be put before Mr Brown on Wednesday.

Other recommendations include persuading farmers to give up some land for new social housing developments, to be used by the community in perpetuity, in return for an option on the use of one house and an annual ground rent.

Mr Taylor's remit was to find ways to encourage more affordable rural housing while improving the viability of rural areas. He believes that growth in the countryside will come from an expansion of market towns, and he calls on local authorities to plan schemes that will be attractive to potential residents instead of approving more urban sprawl. The report will conclude that it is possible for market towns to provide the bulk of the 2.5 million new homes required in the countryside in the next 15 to 20 years.

Mr Taylor is drawn to the Poundbury concept because of the high degree of planning and interventionism that accompanied the project, especially the quality of the design and architecture and the need for the scheme to embody a community spirit.

Instead of planning authorities designating various sections of land for housing or industrial use, Mr Taylor wants to see the creation of community developments that include houses, shops, community facilities, workshops and green spaces.Mr Taylor said: “This is a totally different way of planning. Too many market towns have been blighted by anonymous, sprawling estates.”

Releasing land for new social housing projects also requires more imaginative thinking, his report recommends. At present many landowners are reluctant to sell below the market rate. Farmers are, however, often in need of cheap housing in the same way as many local workers. For example, farmers are often unable to retire because they have nowhere else to live. Mr Taylor will suggest that land could be handed over in perpetuity to a community for social housing, and in return the farmer or his family is entitled to the use of one house.

His report will recommend a presumption in favour of allowing small clusters of affordable dwellings if they are well designed, fit in with the character of a village, and win the support of local people. These would be covenanted and could be sold only to local workers. Their prices would be capped.

Proposals

New model villages to be created within market towns

Fast-track planning for affordable housing where villagers approve

Trial system in national parks for buying a second home

New incentives for farmers to give up land for social housing

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