New housing plans will need the backing of local residents in a referendum before they can go ahead, under laws to be proposed by Local Government Secretary Eric Pickles.
The radical proposals follow the Government’s abolition of the regional spatial strategy, which included plans for 397,900 homes in the West Midlands.
Under the old system, regional bodies such as the regional assembly - also now abolished - drew up housing proposals in line with policies dictated by Whitehall, which local councils were then forced to obey.
But decisions will now be taken neighbourhood groups at ward level in big cities such as Birmingham, or parish councils in rural areas.
They will draw up plans showing where new shops, offices or homes should go and what green spaces should be protected.
The plans will be put to local residents in a referendum, and will be binding on councils if approved.
But communities will be encouraged to allow new housing developments in their neighbourhood with the promise of government cash.
The Government’s “new homes bonus” will match the extra council tax raised from new properties for six years after they are built.
Neighbourhoods will also have the power to fast-track planning approval for chosen sites on local land.
The measures, to be announced in next week’s Localism Bill, mark a major shift of power from regional to local level.
Under the previous system, a West Midlands spatial strategy would have meant an extra 57,500 homes were built Birmingham, 63,000 in the Black Country and 33,500 in Coventry, as well as 40,500 in Worcestershire - mainly in Bromsgrove and Redditch - and 43,500 in Warwickshire.
Although Birmingham welcomed plans for dramatic expansion of its housing stock, other councils were opposed. Authorities such as Coventry claimed they were being forced to allow building on green belt land, in order to comply with the regional strategy.
Mr Pickles said: “For far too long local people have had too little say over a planning system that has imposed bureaucratic decisions by distant officials in Whitehall and the town hall.
“We need to change things so there is more people-planning and less politician-planning, so there is more direct democracy and less bureaucracy in the system. These reforms will become the building blocks of the Big Society.”