Falling incomes across the West Midlands have hit the construction industry because developers cannot be sure of getting a good return on the homes they build, the leader of Birmingham’s Conservative councillors has warned.

Mike Whitby, the former leader of the city council who now heads the Tory opposition group, urged the Government to consider subsidising the construction sector by sharing some of the risk they took when building new developments.

He highlighted a planned development at the former Rover plant at Longbridge, where up to 700 homes will be built. Developers were concerned about whether they would be able to make a return on their investment, he said.

Speaking at a fringe event at the Conservative conference at the ICC, Coun Whitby said: “We have a major development out in Longbridge where the Chinese now have taken over Rover.

“There is some land as well, they are going to build about 700 houses there next to Bromsgrove.

“I spoke to the construction people and before they buy the land, clearly they’ll look at the cost of the land. Then they’ll look at what they will build that property. And then they will look at the disposable income in that area.”

He added: “One of the sad things for the Midlands is that while your average wage six years ago was about £27,500, it has dramatically reduced.

“And what’s out of sync is the value of the land to the cost of borrowing to the return to the construction company.”

The Government’s Annual Survey of Hours and Earnings backs up Coun Whitby’s claim that salaries have fallen in real terms.

In 2008 the average gross annual salary for a person with a full time job living in the West Midlands was £27,803. This is the equivalent of £30,437 by 2011, once inflation is taken into account.

But in fact, the average salary in 2011 was £28,540, nearly £2,000 less than it needed to be to keep up with inflation.