Councils in England are to be offered extra money for every newly-built home, as part of a government programme aimed at easing housing shortages.
Under the New Homes Bonus scheme the government will match the council tax raised on each new house for six years.
Housing Minister Grant Shapps said action was needed as home building was at its lowest level since the 1920s.
Shadow housing minister John Healey described the announcement as a con and said the scheme would cost billions.
Mr Shapps said: "We will not tell communities how or where to build.
"But the New Homes Bonus will ensure that those communities that go for growth reap the benefits of development, not just the costs.
"With house building falling to its lowest level since 1924 under the previous government, action is needed now to build the homes the country needs."
According to Mr Shapps the current arrangement does not help residents to get the building projects that they need in their communities.
"We think this top-down system which pitted communities against developers meant they spent loads of time in court and at planning appeals. We think that's crazy.
"And a better system is to get people actually saying there's something in it for our area - we can have a new swimming pool, or town centre, or something that we want in our area if we allow some house building to go ahead. That rebalances the argument and we believe they will build more homes".
There were 120,000 homes built last year and there are 4.5m people in England who are on council waiting lists.
BBC correspondent Graham Satchell said the announcement offers an incentive to local authorities.
For every new home built the government will match the council tax raised on each new house for a period of six years - for a band D home that would be around £1400.
And local authorities are expected to have control over how they spend the money.
But Labour's Mr Healey said: "The cost will run into billions, met mainly - as Tory proposals indicated before the election - by existing grants to local councils.
"Given the potential impact on essential local services, we could quite literally see government robbing Peterborough to pay Poole."
The Local Government Association welcomed the move but said any new building would need the support of local people.
But David Orr from the National Housing Federation said more had to be done.
He told the BBC: "There are places all over the country where there is a crying need for new homes, but there are still many, many communities where the default position is 'we don't want to see any new homes built here'.
"This incentive might help to persuade some local authorities, whether it will be enough to persuade the local communities - I think that's a much broader question.
"And I think that there is a different strategy that's needed here, about persuading the nation that we have to be able to house our children, and if we do not build more homes we will not be able to do that."