OXFORD University hopes to submit plans to create 200 homes for its staff in Wolvercote by the end of the year.

The scheme to 'extend' Wolvercote has been delayed as it emerged that the escalating costs would significantly exceed the initial estimate of £40m. But the university says it hopes that building work can coincide with the £30m scheme to replace the Wolvercote viaduct on the A34.

With work on the bridge expected to start in 2008, the university says it hopes to share a temporary access road from the A34 to avoid heavy construction traffic passing through the village.

The university wants to build the homes to help address a housing shortage that is making it increasingly difficult to attract and retain staff. Wolvercote would grow by about 20 per cent if the scheme goes ahead.

Plans to develop the former Wolvercote Paper Mill site were unveiled two years ago. Housing for more than 600 people, would feature a mix of accommodation from one-bedroom flats to four-bedroom houses.

The university initially hoped that construction would begin this year and be completed by 2009.

But Tim del Nevo, the university land agent, said it had emerged that the cost of the scheme threatened to exceed initial forecasts, largely as a result of the water features at the heart of the plan.

The site presently includes a neglected reservoir and is bordered by the Mill Stream, a tributary of the Thames. The university says it wants to create a waterside development to "form an integral part of the fabric of Wolvercote".

Mr Del Nevo said: "If we want buildings to stand close to water, it will be more difficult and expensive than we thought.

"We are now looking to see where we can make savings before coming back with designs. But we are determined to keep to the ethos and high quality of the scheme. We would not want to see the density of the development increasing."

He hoped that work could begin by next summer. Seven acres of the 17-acre site lie within the Green Belt, with the rest designated brownfield.

An island on the river would be reinstated, with an underground culvert opened to create a canal.

The land has been owned by Oxford University Press since the 1850s, with the university planning to acknowledge the mill's industrial past by relocating the OUP's last remaining printing centre within the site.