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"I'm delighted in the change in the council's approach to tenants' participation," says Pat Molloy, a board member of Sheffield's newly created arm's-length management organisation. "I just hope it continues."

The change the council made at the lively meeting at Sheffield Hallam University was to give up trying to get tenants to sign a tenants' agreement it drafted and fund them to write their own.

And a lot is riding on this agreement. Sheffield has big problems. It needs £1bn to get its 58,000 homes up to the decent homes standard. It has unemployment of 4.2%, far higher than the regional average.

Nonetheless, Sheffield has come a long way since 2002, when Joanne Roney, director of neighbourhoods at Sheffield, was trying to persuade tenants to sign up to a stock transfer that she admits now didn't stack up financially. That changed when the Liberal Democrats lost control of the council to Labour and the Communities Plan came along. Now, the council's approach is about getting the city's districts to decide their own future.

It has set up 10 neighbourhood commissions, staffed by tenants' representatives, council staff and independent advisers, which have each been charged with coming up with a strategy for their area. Most are expected to choose to rent services from the single central arm's-length management organisation that the council has set up, which has already asked for £145m in the third round of ALMO bidding and which will bid for more in coming round should the neighbourhood commissions require it (see "The facts", left). The first two areas – the Brightside estate and the central area – came to their conclusions in September, and tenants approved them in December. Three others are waiting for a tenants' ballot and five are starting to consult, looking to have strategies in place by the late summer.

Carl Tupling, head of housing strategy at Sheffield, says: "The real breakthrough has been getting people to identify their communities, and then work with them to come to a decision for that community and then to accept that to make it distinctive something's got to change, and to make that change will mean some people losing their homes."

However, there is no hiding the fact that some are upset about the way the move has been handled. In September the council stopped recognising the principal tenants' body – START – and some tenants claimed this was because a more combative board had been voted in. Tupling, though, says START was "dysfunctional".

Some tenants remain unimpressed by the consultation the council is so proud of, and view the strategy with suspicion. Molloy says: "The commissions and the abandonment of START were presented to us as faits accompli. It was appallingly badly done. The commissions were steamrollered through."

Some see the creation of the single centralised ALMO as a bid by the council to retain power, while Liberal Democrats see it as old Labour dogma – wanting to keep tight control of public assets at the expense of real devolution of power to local communities. Chris Weldon, cabinet member for neighbourhoods, strenuously denies this.

However, there is no doubting the support from many tenants for the council's actions, and the fact it has clearly gone further than most to find out what people want. Innovative schemes such as the passing-over of the Shiregreen Estate, in home secretary David Blunkett's constituency, to a tenant management organisation before stock transfer, show the council is truly ready to be flexible.