A large increase in government investment is needed to reinvigorate housing markets that have collapsed because of the problem of empty homes, a report has found.

Published on Wednesday, the report by the local government select committee calls for hundreds of millions of pounds per year to be invested in tackling the problem, mainly in the North of England, through making the areas worst affected more attractive to new and existing residents.

Building on greenfield sites should be radically reduced with brownfield sites re-used more often, the report concludes.

"The alternative is that our northern cities will consist of a city centre surrounded by a devastated no man's land encompassed in turn by suburbia. In inner urban areas disadvantaged residents will increasingly see their standards of living diminish even further and the costs to communities, businesses and the public services increase," it says.

The report found that the national strategy for neighbourhood renewal did not consider the implications of its effect on wider conurbation.

It concluded that housing benefit led to problem families moving into these areas without their behaviour being addressed, while empty houses prevented private landlords from receiving private finance to improve their properties.

Focus on deprived neighbourhoods by the government was stopping early preventative measures in areas of decline, while social regeneration is not considered sufficiently in the economic growth targets of regional development agencies, it concluded.

Co-chairman of the committee and Labour MP for Denton and Reddish Andrew Bennett said that MPs were shocked by the scale of trouble caused by empty homes.

"This is a massive problem and it is getting worse. The government will not meet its target to turn around the incidence of low demand by 2010 with its current policies. It needs a new approach which creates desirable places to live in our inner urban areas, attracting new residents back from the suburbs," he said.

"Housing market renewal needs to be undertaken on a large scale, over a long period of time and requires significant additional funding. It must not be undermined by the continued building of new houses on greenfield sites."