Labour is to offer first time buyers cheap homes built on public land and lower mortgages to invest a stake in new houses.

In new proposals aimed at cutting the shortage of affordable homes, housing association tenants are also to be allowed to buy their homes at discounted rates for the first time.

The plans are to be unveiled next week as John Prescott publishes the five-year plan of his Office of the Deputy Prime Minister.

David Miliband, the Cabinet Office minister, said yesterday that giving people more choices in their local environment, policing and housing amounted to "the politics of empowerment".

In a speech to the Local Government Network Conference, Miliband said: "Power is political, economic, social and cultural. It depends above all on the choices people have about their daily lives and the voice they have in the governance of local and national affairs.

"Empowerment concerns the ability of people — all the people — to make decisions about the shape and course of their own lives."