This is a council estate. The Government spent pounds 150,000 on each house. Why?

Catherine Pepinster explains how Utopia came to Oliver Close

IT IS the most pampered council estate in Britain: brand new, three-bedroom terraced houses, with front and back gardens, individually designed kitchens and bathrooms, fitted carpets and wardrobes and even free aromatherapy sessions and aerobics training thrown in. It's part of a newly-built Utopia costing a quarter of a billion pounds that would be the envy of any tenant in a tower block, and probably of many other people, too.

The estate is Oliver Close in Waltham Forest, north-east London. It is privileged because it is run by a Housing Action Trust.

Remember the Housing Action Trusts? They were going to be the Tory answer to Britain's housing problems. Despite the success of the right-to-buy policy, council flats, particularly in tower blocks, proved almost impossible to sell.

The action trusts would, after a tenants' vote, take control of such properties away from town halls and hand them to the tenants. Funding for maintenance and improvement would come from central government. The principle was similar to that for opted-out schools, which were taken from councils and given to parents, with funding from Whitehall.

But to a far greater extent than with opted-out schools, the experiment fell flat. Tenants across Britain proved loyal to their local councils. Fearing that their security of tenure would be at risk or that rents would rise, they spurned the action trust solution.

Then tenants in Hull, Liverpool and Waltham Forest realised that just as the Government had ensured above-average funding for opted-out schools, it would do the same for opted-out estates. Told there was no other chance of getting money to improve their homes, they finally agreed to have them taken over by action trusts.

The results in Waltham Forest have been spectacular. Ten dismal, concrete tower blocks are coming down - one of them was once described by the Prince of Wales as the worst he had ever visited - and being replaced by comfortable new terrace houses. And the action trust, with funds from the Department of the Environment, is spending the equivalent of pounds 150,000 per small terrace house - three times as much as the funds being spent on similar inner- city neighbourhoods in London which are still run by town halls.

Housing officials in other London boroughs, such as Lambeth and Hackney, who are responsible for redeveloping similar run-down neighbourhoods, are amazed that the Waltham Forest trust has been given so much money. "It's a gravy train," said one. "We haven't a hope of acquiring such generous amounts of money." The House Builders Federation expressed surprise too. It estimates a small terraced house would cost about pounds 40,000 to build.

Families on the Waltham Forest estates - Oliver Close, Boundary Road, Cathall Close and Chingford Hall - acknowledge their luck. "Yes, we have landed on our feet," said Andy Healey, who represents tenants on the action trust board. "For years we lived in grotty, damp flats, and now we have got the houses that we want. The spending has been generous."

For years, the tower blocks suffered from broken entryphones, vandalised garages and burnt-out bin areas. Fly-tipping used to be common, and cars were frequently torched. The blocks themselves were poorly insulated, and many were structurally unsound.

Now the blocks are making way for 1,690 traditional family homes, complete with gables, gardens, dormer windows, and two-tone brickwork. In Oliver Close, the first new houses are already built; tenants were able to choose the shapes of the rooms, as well as the kitchen and bathroom units. This Utopia of the Nineties is far more than bricks and mortar. Oliver Close will have all manner of services and entertainments, from aromatherapy sessions and job training to aerobics classes, child-minding and rap music events, all laid on at the behest of the trust. The talk in the housing trust office is of the modern (and less poetic) equivalents of "homes fit for heroes", "defensible space" and "tenant empowerment".

These slogans are the work of the costly consultants who were brought in by the action trust board. A dozen were recruited to discuss design of the new homes, others to assess these designs. More consultants are now being drafted in to assess the tenants' views on the future of their estates. (In five years' time they must decide whether they want to go back to the local council or move fully into the voluntary sector by forming or joining a housing association.)

The consultants are one of the reasons the Government's spending watchdog, the National Audit Office, is investigating the trust's use of public money. At one point, so many were working on the project that two companies were acting as the "tenants' friend". The first was brought in to act as the tenants' adviser and to mediate with officials. When that firm was thought to be promoting the line of the civil servants too enthusiastically, another firm, set up by the Labour MP for Greenwich, Nick Raynsford, was also brought in.

Yet the action trust still got its sums wrong. One hundred and seventy families have not got a home in the new redevelopment, so the trust will have to buy land elsewhere to house them.

The action trust made plain from its early days that its interests would go well beyond building homes. It said it would work "with tenants to develop homes, people and communities which will bring about a long-lasting improvement in the quality of life".

"The merits of the Housing Action Trust approach are clear," said Trevor Hendy of Chapman Hendy, one of the consultants who worked on the project. "It means that housing is not just tackled in isolation but together with problems such as unemployment and training. Tackling these problems is going to take a huge investment."

"People wanted housing that was reassuring," said Bernard Hunt of the architects Hunt Thompson, who worked with the tenants on the design. "They had lived in an alien environment for so long that they wanted homes that came with all the things the rest of us take for granted, like gardens, their own private entrance and somewhere safe for the kids to play.

"It's easy for architects to make assumptions about designing a house. For instance, I was quite surprised how strongly everybody felt about the kitchen. They didn't want it to be public, but at the back of the house. The front had to be the smartest part of the house, with rooms on show for passers-by. And they didn't want children marching in from the back garden to the living room with muddy shoes. They wanted them coming into the kitchen.

"You could say that it is unfair for so much money to be spent on one project, but it has signified what is achievable if you have so many people - tenants, landlords and designers - working together as a team. The real issue is that there is a desperate shortage of funds for housing as a whole."