The deputy prime minister, John Prescott, will today revive a plan to give housing association tenants the chance to partially buy their homes, even though his own department rejected the idea as too expensive and unpopular with residents less than two years ago.

Under Mr Prescott's five-year housing plan, from April 2006 housing association tenants will be able buy a share in the value of their homes ranging from 10% to 50%.

The scheme will also say that when new equity owners come to move, their housing association landlords will have first refusal on buying back the stake in the home to ensure that social housing supply is protected.

Endorsing the initiative this morning, the prime minister, Tony Blair, said it would provide "a more flexible way of acquiring and then building up equity in the value of homes".

The scheme, known as "social homebuy", marks a significant policy U-turn from Mr Prescott's department. In March 2003, a report by his office found tenants were unenthusiastic about the idea, and that one version of it would cost £7bn to implement.

The report even ruled out testing the idea. "Setting up any equity shares schemes now would be going too far too fast, based on what we know about the likely effectiveness of the policy," it said.

But Mr Prescott was forced to reconsider the policy as part of a compromise deal with the government's election strategist, Alan Milburn, who is pushing for housing association tenants to get the same right to buy as council tenants.

Last September at Labour's conference Mr Prescott pledged "those homes are not for sale". But under today's plan, around 300,000 housing association homes will be available for a partial sale.

The housing minister, Keith Hill, insisted the plan would not mean the end of social housing. "In the next three years we will be building 50% more homes for social housing," he told the BBC Radio 4 Today programme.

He pledged that the government would halve homelessness by 2010.

Under today's five-year plan, Mr Prescott will propose to build tens of thousands of starter homes on government-owned land for as little as £60,000.

The homes could be built by private developers or housing associations and the purchasers would buy the house, but not the freehold, significantly reducing the overall cost.

Explaining the idea Mr Hill, told Today: "We will take out of the cost of house prices the price of land - about 40% - so people will only have to pay 60%."