Homeowners could be compensated by the state if the value of their property falls as a result of the building of new garden cities, to encourage them to accept a development in their area, Deputy Prime Minister Nick Clegg has said.

Mr Clegg suggested that affected households could receive council tax rebates during the construction period, or may be able to sell their homes to the state at guaranteed prices.

The Deputy Prime Minister announced plans in April for a new generation of garden cities to ease the demand for housing in the south of England. It is expected that up to three cities of at least 15,000 homes will be built in the South East, though no locations have yet been selected.

Mr Clegg told the Sunday Telegraph that he wants a shortlist of potential locations published by the end of the year.

Speaking to BBC1's Countryfile, the Deputy Prime Minister said it was important to safeguard house prices in areas chosen for projects.

"We could maybe give deductions on their council tax for the period of time during which the garden city's being built," he said.

"We could possibly also say to those homes where they think the price of their home will be affected, we will guarantee the price of their home by buying it, if you like, upfront."

Mr Clegg promised that ministers would "go the extra mile to allay those concerns of people who feel that their property or the price of their home might be affected", adding: "We don't want people to lose out."

Publishing the Government's Garden Cities Prospectus in April, the DPM said there was an ''arc of prosperity'' stretching from Oxford to Cambridge where many people wanted to live but were unable to find or afford houses. He highlighted Bicester in Oxfordshire as one area that had expressed interest in a large-scale development, although he did not say whether it would be a new garden city.

He said then that he wanted a revival of the "vision" which saw a string of new towns, including Milton Keynes, Welwyn Garden City and Hatfield, built in the years after the Second World War.

Mr Clegg told the Sunday Telegraph: "Many people will want to live in world-beating garden cities. The point of them is that they must be well-designed, support jobs, contain top-quality green space and services - the best of town and country in one place.

"But we also need to make sure that no individuals lose out during the development."

Some 109,370 new homes were completed in England last year - the lowest figure for four years and well below the 200-250,000 which experts believe the country needs to meet its needs.

Twenty-seven new towns were built across the UK after the Second World War, including Stevenage, Harlow, Milton Keynes, Corby, Cwmbran, Newton Aycliffe, Peterlee and Cumbernauld.

Housing Minister Brandon Lewis said: " This is an interesting contribution to the debate on garden cities by Nick Clegg. The Government is clear that planning should be locally led working with local communities.

"The bidding process is still open for communities with proposals for ambitious, locally-led developments that have the backing of existing residents."

National Housing Federation head of policy Rachel Fisher said: "We need more garden cities as they are part of a long-term solution to solve the housing crisis. They need to be led by developers who can work in partnership with councils and communities, taking a long-term investment view.

"Housing associations are delivering good quality, sustainable homes across all tenures. They are social businesses whose profits are returned to the community through neighbourhood investment programmes and other contributions to the local economy.

"They are therefore well-placed to work with local authorities and communities to deliver new garden cities that are genuinely affordable, sustainable, and welcomed by local communities."