Gordon Brown is set to usher in a new era of council housing by helping local authorities to buy repossessed and unsold properties. Cash and powers will be made available so that town halls can intervene in the housing market, The Times has learnt.

The measures – which could be announced as soon as Tuesday – will encourage councils and housing associations to offer struggling borrowers financial help in return for a stake in their homes or outright ownership. The number of council homes has plummeted since 1981 from 6.1 million to 2.5 million. Hundreds of millions of pounds of extra cash earmarked for social housing could now be released early to buy up newly built properties.

It is understood that town halls will also be encouraged to emulate Liverpool’s local authority, which offers first-time buyers help with deposits in return for a small equity stake. Other options, including a stamp duty holiday, are being held back for further consideration.

The news came as Mr Brown’s plan for eco-towns unravelled further when Tesco became the latest developer to withdraw its bid.

The scale of the housing crisis was underlined yesterday with the biggest drop in prices since 1990. The latest monthly fall – the tenth in a row – means that the average property has lost 10.5 per cent of its value in the past 12 months, according to the Nationwide building society.

Alistair Darling, the Chancellor, and Caroline Flint, the Housing Minister, have been working for three months on measures to invigorate the mortgage market, particularly for first-time buyers, and to cushion those affected by rising repossession rates. Up to 300,000 homeowners are already in negative equity. Vince Cable, the Liberal Democrats’ Treasury spokesman, said that this figure could quadruple.

David Orr, the chief executive of the National Housing Federation, said that the new mortgage rescues would be open to those on low incomes, particularly young families.

Gideon Amos, of the Town and Country Planning Association, said that allowing councils to intervene would help the whole market.

It is estimated that 4,000 estate agents have lost their jobs and that this could rise to 10,000 by the end of the year. Savills said that country homes worth between £1 million and £2 million fell in value by 5.2 per cent in the three months to June.

Money Central: London house price data, borough by borough