What has Bill Gates done to Cambridge property?

Bill Gates's decision to establish a new research and development centre for Microsoft in Cambridge is unlikely to have much effect on the town's prosperity. It is doing too well already. It's not for nothing that Cambridge is known locally as Silicon Fen.

Cambridge has succeeded in carving out a niche as a location for young hi-tech companies. The science park, established by Trinity College on land that it owns outside the town in the early 1970s, has been particularly important.

But unlike the Silicon Triangle - the area along the M4 corridor hemmed in by Slough, Reading and Bracknell - Cambridge has until now lacked a major international company based in or near the city. Microsoft's arrival will fill that gap.

"On the face of it, Microsoft is to be welcomed," says Jock Lloyd-Jones, senior residential partner of chartered surveyors, Bidwells. "It reinforces the identity of Cambridge on an international scale, alongside London, Oxford and Edinburgh, and it makes it stand out."

Some, however, question whether the town really needs a high profile catch like Microsoft to further add to its lustre. And the big question being asked by some people in the town is where are all these new employees going to live?

Nick Redmayne, senior partner of Redmayne, Arnold & Harris, a firm of local estate agents, says the residential market has been suffering from a shortage of good property since last September. He estimates that property prices have risen by 20-25 per cent over that period. The mini-boom is most noticeable among good quality Victorian and Edwardian homes.

Bidwells has a four-bedroom house in Newnham Village, half a mile from the city centre, for pounds 250,000. In Swavesey, nine miles to the north of Cambridge, it is offering a five-bedroom country house, set in six acres of land with stabling and paddocks, for pounds 285,000.

Historically, the town has always had a relatively small pool of up-market properties to draw on. In part this is because of the severe planning restrictions that apply here. Cambridge City Council is a fierce custodian of the medieval charms of the place, with its intricate network of colleges, cloisters and quadrangles.

Surrounded by a green belt, Cambridge is by necessity a compact city with an acute shortage of plots for new housing or offices. Local developers would pay huge sums for land but there are no greenfield sites, and few with redevelopment potential. This is reflected in price. Land for development costs around pounds 60,000 an acre out in the Fens, but soars to over pounds 1m an acre in central Cambridge. This represents a rise of 25 per cent in the past year alone.

With the influx of the last 20 years, demand for good residential property has soared. The latest wave has been a sudden growth in biotechnology companies. Some, such as Chiroscience, valued at pounds 325m, have already made their mark on the stockmarket. Others, like Alizyme, created two years ago to develop drugs that target obesity, are still at a formative stage.

This growth has had a knock-on effect on the city. Cambridge is now one of the most desirable towns in which to buy a residential property in Britain. According to figures produced by the Halifax, the average price of a semi-detached house in Cambridge at the end of last year was pounds 76,950. Few places outside London cost more than this. Notable rivals include Reading, itself the beneficiary of a hi-tech boom, and commuter hot-spots such as St Albans in Hertfordshire.

But there is a downside to the boom. Traffic congestion is now a major problem, with the early-morning and late afternoon rush hours as intractable as Blackfriars Bridge in London at the same times.

The city council and county council have together embarked on an expensive campaign to correct the problems, chiefly through the development of park and ride sites on the town's outskirts. Three have been built at a cost of pounds 3m each and a fourth - the last planned - is under construction on the east side of the city, on Newmarket Road. The park and ride scheme has proved a great success, but there is still immense pressure on the fabric of the town. Not everyone believes the current growth is sustainable.

Mr Lloyd-Jones has doubts. "While we have a market that is working well at present, one can foresee problems of infrastructure, and traffic is already a serious problem." David Maurice-Jones, policy manager for the local chamber of commerce, says there will be a point when the city will have to say enough is enough. The big problem, he says, is how to keep Cambridge pleasant, while still allowing it to expand.

At present, details of Microsoft's plans remain vague. There have been suggestions that the centre will create only 100 jobs, and many of these will go to academics already working at the university. Other reports suggest that within a few years, the enterprise could be employing a thousand people.

But this is only the tip of the iceberg. Expansion has created jobs - and a skills shortage - further down the chain. Tesco has had difficulties filling 350 jobs at its new supermarket in Fulbourne, on the outskirts of the city.

The science park itself has expanded, now covering 130 acres with 1 million square feet of buildings completed. After a lull created by the recession, new plans to build are emerging and the remaining 25 acres look likely to be filled within the next five to ten years.

Quite apart from these new jobs, Cambridge's attractions have also drawn the town into the ever-widening London commuter belt. A 60-minute train journey from Liverpool Street station means that many of the town's residents work in the capital. As well as the unique atmosphere, one of the biggest draws for those fleeing the capital is the schools. Cambridge state primary and secondary schools have done well in national league tables and there are several private schools to choose from as well.