Developers are turning against John Prescott's plan to build homes on recycled industrial land in towns and cities, according to research.

The deputy prime minister wants to restrict building in the countryside and use brownfield sites to provide homes as well as stimulating an "urban renaissance".

But analysts revealed yesterday that many companies opt for greenfield sites because the risks are lower and the returns higher, despite a widening price gap between rural and urban areas which has seen a 226% rise in greenfield land values in eight years.

The property consultants Savills say the case for reusing industrial sites has been further undermined by a European court of justice ruling.

This could mean that many sites earmarked for development, often contaminated and needing reclamation, will have to be reclassified as "landfill".

Consequently, any developer would have to apply for a permit, which Savills say would trigger a "whole range of legal and financial obligations" that could make building costs prohibitive.

Ominously for Mr Prescott, areas earmarked for development by the government in the 40-mile Thames Gateway corridor from London eastwards to Kent and Essex could fall into this category, along with many other sites around the country.

"Apart from the extra costs associated with developing a 'landfill' site, there are other serious implications to take into account," said Yolande Barnes, head of Savills' research arm.

"A potential buyer, for example, may find difficulties securing a mortgage on a property built on a registered 'landfill' site; this, in turn, could threaten the viability of a development and, ultimately, render some of this type of land virtually worthless."

This could "put a spanner in the works" for the government committed to building 60% of housing on brownfield, or recycled land. "The implications are enormous," she said.

By contrast, Savills say many developers prefer greenfield sites, despite the huge rise in land values, because they are straightforward and produce better returns at lower risk. In high-demand areas, such as the east of England around Cambridge, land costs more than £2m an acre.