Councils say they may have to buy their way out of the slump in the housing market and convert properties into affordable homes in order not to lose Government grants.

It comes as new figures show that house prices dived at a record rate during the year to the end of September, losing 12.4 per cent of their value. In the Yorkshire region the average price was down by 10.1 per cent, or about £14,000.

In Sheffield the average house price has fallen by 19 per cent on last year, while homes in East Yorkshire have slumped by nine per cent in the last three months alone, figures from the Nationwide show.

Seema Shah, a property economist at Capital Economics, said: "The toxic combination of the mortgage credit squeeze, sharply slowing economic activity and plummeting buyer confidence has caused house prices to fall at a record pace over the past year.

"With none of these factors likely to disappear, or even ease, over the coming months, house price declines could easily intensify."

The move to buy properties in the region is part of a package of measures being proposed by the Yorkshire and Humber Assembly in a new action plan to address housing conditions.

Officials said they are becoming increasingly concerned that challenging Government targets for building new homes in the region will no longer be achieved – potentially losing the region millions of pounds in lost grants.

The Government awards both a block grant to the regional assembly for delivery of housing – £559m for 2008-11 – and up to £1m to each local authority through the Housing and Planning Delivery Grant (HPDG). Both could be reduced unless 22,260 homes are built in the region each year.

Leeds Council said the economic downturn would have a "serious impact" on future HPDG money, Rotherham Council said it will receive a reduced grant "for the foreseeable future", while Sheffield Council said a cut in HPDG will "place severe pressures" on its budget.

There are also fears that the number of desperately-needed affordable homes built in Yorkshire will have to be slashed, with developers unable or unwilling to lower profits during bleak times by selling properties on the cheap.

In order to meet strict Government targets for affordable homes, both the Housing Corporation in Yorkshire and the Golden Triangle Partnership of Leeds, Harrogate and York councils are discussing whether to buy properties at market rates and then rent or sell them on as affordable.

A total of 2,513 affordable homes are supposed to be built in Yorkshire this financial year but, as of August 31, that number stood at 503 and Housing Corporation managers warned meeting regional targets for this and the next two years would be "very challenging" without intervention.

And the assembly's Regional Housing Board will today discuss spending millions of pounds buying up swathes of land and preparing it for building, something usually done by developers, in order to deliver social housing.

Millions of pounds may also be invested in a new mortgage rescue scheme for Yorkshire, allowing housing associations to buy part of any home when the owner goes into arrears.

Rob Warm, the head of housing at the assembly, said: "When people get into difficulty with their mortgage they lose t heir home, which puts a strain on the public purse as they have to be re-housed.

"It's cheaper to keep them in their own home, so under this proposal housing associations will be able to buy 25 per cent of the home, allowing the owner to occupy it under a shared-ownership scheme."

The Golden Triangle Partnership is also likely to introduce a mortgage rescue scheme as early as December, either providing short-term loans of up to £10,000, long-term loans of up to £40,000, or covering the cost of the mortgage until the owner can sell the home on the open market.

However, a Government spokesman said: "It is simply wrong to suggest any council will be penalised.

"This is an incentive grant on top of mainstream funding, and specific delivery of affordable housing is not part of the current criteria.

"What we have made clear is that councils would receive additional funding for going over and above their targets.

"Whilst we understand current pressures, people in Yorkshire and Humber need more homes over the long term."