Live-in work spaces will be built in Winchester in a bid to stop the "brain-drain" of talented graduates.
Hundreds of students of both the Winchester School of Art and King Alfred's College leave the city each year because they cannot afford local sky-high property prices.
Now the City Council is working with local architects, Design Engine, to build 14 workshops with combined living quarters in Winnall.
The so-called "live-work units" will be rented to local graduates looking to set up small businesses in the city.
Professor Katharine Crouan, head of the Winchester School of Art, which is part of the Southampton University, welcomed the initiative.
"Every year, we wave goodbye to some of the most talented designers and artists in the country. They need to have somewhere to work and somewhere to live, and Winchester is just too expensive."
Prof Crouan said that every year only "ones and twos" of her 250 graduates remained in the city, with most of the rest tending to move to London or Brighton, where there is an abundance of cheap studio space.
She said: "A project like this is so in keeping with the city's identity as a cultural centre. These are artists and designers who make money. They are contributing to the economy of the city, but they need a helping hand at first."
Winchester City Council has agreed to work with Wykeham Properties Ltd to build the three-storey buildings on former railway land in Moorside Road, on the Winnall industrial estate.
Each 106-square metre unit will be over three floors and will feature a kitchen and a bathroom on the upper floors. The ground floor will be clear, open flooring - ideal for use as a workshop.
The studios will be rented for fixed-terms, with the tenant having no security of tenure, so as to allow a regular turnover of occupiers. Rents could be subsidised with cash from the Arts Council.
The project will cost the council nothing upfront: it owns part of the land the units will be built on and will collect some of the rental income.
Tony Langridge, the council's chief estates officer, said the earliest the units could be built is the beginning of 2005.
Council leader, Sheila Campbell, pointed out that there were many hurdles to be overcome before the scheme became reality, but said: "It suits our aims.
"It provides housing that I hope will be low-cost, it encourages small businesses and it will not add to traffic congestion and pollution."
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