A hedge fund has come up with an innovative way of capitalising on the US housing market crash, buying tracts of abandoned development land in California, one of the states hardest hit by the downturn.

While house prices have fallen by a little under 20 per cent over the past year, land prices have slumped by almost 80 per cent, according to David Michelson of Three Arch Investors, manager of the California Distressed Land Fund.