Minister banishes Thatcherism with plan to build council houses

The biggest shake-up of council housing since tenants were given the "right to buy" under Margaret Thatcher has been endorsed by the Cabinet to help give young people a foot on the housing ladder.

The Housing minister, Yvette Cooper, is planning a Green Paper that will herald a return to council house building by local authorities to provide affordable homes for those most in need.

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Ms Cooper has told ministerial colleagues the plan will not mean a return to the monolithic council estates of the 1950s but will allow councils to build more homes suitable for families.

Councils are to be allowed to use the revenue from rents to raise money for council house building. But the Green Paper will propose that the affordable housing should be a mixture of family homes and flats, offered on a range of terms, including shared equity, to allow young people to partly own their own homes.

"It is the biggest change in housing since the 'right to buy'," said one former minister. "It will transform the provision of housing. In Manchester, there are thousands of flats for yuppies, but not enough for families.

"This will enable councils to get back into the housing market for the first time in years but it won't turn the clock back. It will allow mixed communities and it is highly sensitive because it will allow a racial mix." The Tories under Baroness Thatcher switched public finance for social housing to private housing associations, partly for ideological reasons, in order to break the hold of local authorities on their tenants. Housing associations were able to raise money privately but council spending was capped under the public sector borrowing requirement.

Ms Cooper will propose that arms' length management organisations (Almos) run the new estates, which could enable a greater social and racial mix of housing. That will disappoint some campaigners who want councils to be the main landlords again. But councils will be able to keep the flow of rents, rather than the revenue being shared across the country.

Ms Cooper is also keen to make sure new housing is eco-friendly and carbon neutral. She is pioneering five new eco-towns on brownfield sites, such as former RAF bases. Gordon Brown has made affordable housing a priority for this year.