Council to borrow £55m to buy up unsold city flats

Areas where the market has slumped most, such as Leith Docks and the Waterfront, are expected to be targeted in the new drive, which is intended to restart development in the city, help tackle the growing affordable housing crisis and provide much-needed work for the ailing construction sector.

Estate agents say the move is likely to be a "saving grace" for developers that do not have the confidence to finish sites because of tough conditions.

Under the scheme, the council would buy up sites where planning consent has been granted but work has not finished using a loan that the Scottish Government would provide a guarantee for.

It would then offer the completed units at "mid-market" rental rates, usually about a fifth lower than the rental market.

Steven Currie, a director of Edinburgh-based Murray and Currie, said: "The average developer is very exposed at the moment and would love the opportunity of an exit strategy.

"Nobody really knows what will happen to the market just now so if they can do a deal on plots and units it will be a saving grace for some developers."

The move is likely to lead to affordable housing being created next to blocks of flats that have been marketed at professionals and Mr Currie admitted that affordable housing does have an unfair "stigma" for some homeowners.

Demand for affordable housing vastly outstrips supply in Edinburgh, with an average of around 130 households bidding for every one council home that is advertised.

Councillor Paul Edie, the city's housing leader, said: "There are several sites in the city that have planning consent for housing but are currently mothballed as the developers can't raise loans from banks to build homes. This scheme is an ideal way of dealing with the shortage whilst at the same time providing an economic boost for the housing industry."

The council's plans, which still require approval from councillors, are part of the Scottish Government's new National Housing Trust initiative.

Leith councillor Gordon Munro welcomed the plans and said many sites in his ward have been lying empty. But he said cheaper than "mid-market rents" would be better.

"The Wimpey City site at the back of Ocean Point has been empty for years despite having its planning consent renewed, but I'd rather see council housing or housing association homes rather than mid-market rent."

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