Council workers in Brighton and Hove are demanding £2,000 salary increases in a move which could cripple the cash-strapped authority's finances.
As property prices soar, public services union Unison put in the claim for local weighting in an effort to bring the city into line with London pay scales.
Union leaders say the payment should be backdated to April last year and updated annually to take account of the exceptionally high cost of living in the city.
But council leaders today said it was unlikely the claim, which would amount to around £6 million a year, could be met and they are working on a package of alternative incentives for staff.
The union has accompanied its claim with reports of financial pressures facing its 3,000 members, who make up about half of the city council workforce.
The claim does not apply to the highest-paid staff such as assistant directors, directors and the chief executive but extends to staff earning up to about £35,000 a year.
While house prices in the city have risen by almost 20 per cent in the last year, average wages have risen by 1.8 per cent.
The wage needed to afford an average-priced property in the city is now £34,700.
Most recently advertised posts show telephone enquiry assistants earn around £13,500, social workers £18,500 to £25,000, substance abuse workers £20,000 to £26,000 and information and computer technology managers £30,000 to £32,500.
Under the bid, lowest paid workers would receive an increase of around 20 per cent.
Branch secretary Alex Knutsen said: "With our terraced houses the most expensive in the country outside London, Brighton and Hove is quite possibly one of the most expensive cities in Europe."
Unison says London workers already get a special allowance and the union is taking action to raise it to a flat rate £4,000. Police receive more than £6,000.
Mr Knutsen said: "The case for a weighting allowance is so strong even our regional employers have written to the Government to support it.
"Our branch intends to lodge claims with various local employers over the next few months.
"But it would be encouraging if the council, the largest employer in the city, were to take the lead and begin serious discussions with us on the issue."
The city council is facing a £17.5 million budget deficit.
Council leader Ken Bodfish said: "Brighton and Hove City Council recognises there are particular problems affecting recruitment and retention of staff with key skills and we are actively introducing measures which will benefit staff.
"We want to attract high quality staff and keep the excellent people we already have. We do not believe, however, that giving every member of staff £2,000 is the most cost-effective way of doing this."
The council says other ways of making jobs attractive include:
*Enabling key workers to get a foot on the housing ladder through a shared-ownership scheme with a housing association which is likely to be extended.
Increasing family-friendly work practices, by enabling people to work flexibly, including home working.
Carrying out an audit of the council's pay and grading system to address inequalities in the organisation.
Coun Bodfish added: "Our staff work tremendously hard and we are keen to ensure they receive good benefits.
"There is already some flexible working; there are good annual leave arrangements and we have a high-quality pension scheme."
Unison officer Steve Foster said: "We think the council could afford it but we have to make the case to the Government too."
He said Brighton and Hove Unison was leading a regional campaign to press the case for local weighting.
It will hold a seminar in March for its own branches and for other trades unions.
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