Stephen Byers has outlined a proposals encouraging council and housing association tenants to take part in Britain's "property owning democracy".

In a speech to the Social Market Foundation on Thursday, Byers set out an agenda of "modernisation and reform" which aims to improve housing for the estimated 300,000 children living below the poverty line and could see landlords losing housing benefit payments if they fail to maintain their properties.

Byers said the government aimed to "extend the benefits of the property owning democracy to the four million social tenants" which, he said, would help to improve social cohesion.

"We can do so by giving social tenants a direct financial stake in their homes, which will both provide them with financial assets to enable them to play a full part in society, and encourage them to take a greater interest in their homes and communities," said Byers.Giving tenants a direct stake in their home has the potential to radically change the outlook of those living in social housing, he argued, as they would have a direct interest in working with their landlord to maintain their homes and communities.

He added, however, that giving social tenants "equity shares" in their homes was only a preliminary idea and no decisions have yet been taken.

Byers also said that over two million children live in homes which do not meet the government's definition of "decent", with the majority living in the private sector. An inherited £19 billion council housing repair backlog had also left 800,000 children living in social housing regarded as sub-standard.

To tackle the problem he said local authorities would receive over £2.5 billion by 2003/04.

"With this extra funding, I am committed to ensuring that by 2010 all social housing meets set standards of decency. Over the next three years, more than 300,000 children will be able to live in homes which are decent, with most of the improvement taking place in the most deprived areas," he said.

Turning to the private rented sector, the minister said too much housing was "of a poor standard, badly maintained and badly managed". To tackle the problem he called for more help for landlords and new investment from financial institutions..

Byers also suggested that housing benefit paid direct to landlords could be used to ensure higher standards."I believe that it might be appropriate to attach conditions to the payment of housing benefit. One such condition could be a requirement to improve the state of the property so that it meets our definition of decency," he said.

Addressing issues of housing provision, Byers said economic prosperity in London and the south east means that the pace of development is failing to meet demand, while other parts of the country were seeing a declining demand for homes.

Referring to cuts in housing programmes during the mid-1990s, Byers said: "My first priority is to change this tide. By 2004 the Housing Corporation's budget for developing new affordable housing will be over £1.2 billion, almost double what it was last year.

"Over the next three years, we will provide 100,000 new or improved homes for low-cost rent or ownership. That includes affordable housing funded by local authorities and some homes secured through planning gain."

He added that planning powers would be used more effectively to ensure more affordable housing is built.

But Labour's housing policies came under fire from the Conservatives. Housing spokesman Nigel Waterson said Labour had "kicked many people off the first rung of the housing ladder".

"Taxes on home owners have increased through higher stamp duty, by council tax rising by three times the rate of inflation and through the abolition of mortgage tax relief," he said.