But the Audit Commission said Gateway was "unlikely to have a had a widespread impact" on the city's housing market because its work had so far been concentrated on relatively small areas.

The report's authors also noted that the scheme had so far received much less money than similar projects set up by the Government five years ago.

It said Gateway did not have specific policies to enhance community cohesion, but was nonetheless "performing well" in this area.

In its summary, the report says: "The pathfinder (Gateway) has undertaken extensive public consultation on area plans, residents' steering groups have continued to influence plans, and Gateway uses a wide and imaginative range of methods for letting people know about its work. ...Communities and individuals are well supported through change."

The inspection, which reviewed Gateway's performance over the last 18 months, found it had met or surpassed all its targets between 2006 and 2007.

The findings were welcomed by Gateway chairman Stuart Whyte.

He said: "The report demonstrates that Gateway is beginning to make a real impact on the ground and that the benefits of the regeneration programme are being seen and felt by local communities. It also shows that we are well placed to deliver future regeneration as we continue to work with communities, developers and other partners to achieve our vision of creating vibrant, sustainable neighbourhoods where people choose to live."

Gateway was launched in 2003 to revitalise neighbourhoods with declining populations where the housing market was weak.

It recently began work in the Woodcock Street area, once so blighted by crime and deprivation that it became known as "Little Beirut".

This £12m development will see the construction of 106 "eco homes" on the site of more than 200 empty and abandoned properties demolished by Hull Council.

Research in 2005 revealed that nearly one in 10 properties in the Newington and St Andrew's wards, which encompass Woodcock Street, were unfit to live in. A total of 60 per cent did not meet the Government's Decent Homes standard, and 32 per cent had no central heating.

Gateway will invest £19m in Newington and St Andrew's this year and over the next 10 to 15 years, with the total public and private sector spending in the area is expected to top £300m.

The report praised the impact of a similar venture in the Anlaby Road area to refurbish 400 privately owned homes. This was having a "striking impact on the attractiveness of the neighbourhood environment", the report said.