There is a part of Surrey just outside London, dangerously close to Croydon, where rundown inter-war housing rubs shoulders with the depressing half-timbered developers’ offerings of recent years, plonked in the scrubby remainders of what was once countryside. But here, the unexpected sight of rows of intriguing brightly-coloured rotating wind-catchers tells you something unconventional is going on. They signal one of the short-listed candidates for architecture’s grandest award, the Stirling Prize. And they might just represent the future of housing.

This is BedZED: the Beddington Zero Energy Development. Designed by eco-architect Bill Dunster for the Peabody Trust, a venerable housing charity that acts like an idealistic newcomer, BedZED is, in its way, state of the art. The art in question being this: how to build a reasonably affordable, totally sustainable, large housing development on a leftover scrap of land, so proving that it is possible to meet the demand for housing without destroying the environment. And to do this all while still being a place that is not for beard-and-sandal initiates only.

At BedZED, nearly all the homes face one way: south. The tall, fully-glazed south-facing facades have conservatory-like “sun spaces” that contain photo-voltaic cells to generate some of the estate’s electricity. In order for the houses behind to receive an equal share of the sun, the backs of the terraces swoop down low. Set into them are little roof gardens, reached by arching steel bridges from the street behind. So you might have a house or flat in one row, but your garden might be on the roof of the row in front.

I’m shown round BedZED by the affable Toks Ajetunmobi, general factotum to the estate. He points out the pavilion where electricity is generated out of waste trimmings from trees, and where the sewage is processed in a greenhouse full of wooden vats of living reeds, and shows me some apartments — all very agreeable, light-filled spaces. One — a little top-floor one-bed flat — is almost unbearably hot on this late summer day, despite its colourful metal wind-cowl on the roof swinging merrily in the breeze to ventilate the space (the idea being not to waste energy in colder weather by opening windows). Ajetunmobi is not fazed: he explains the owner has forgotten to close the double-glazed internal doors to the integral sunspace.

A three-bed maisonette on two levels is on the market at £270,000, with the living spaces on the first floor and bedrooms below. Fourteen of the 100 homes at BedZED, including this one, are owned by architects.

Nine galleried one-bed apartments, originally intended to be live-work units, are now being sold directly by Peabody at £175,000. “Good value,” Ajetunmobi remarks. And they are: huge ground-level spaces with a generous mezzanine balcony, with bedroom and shower room overlooking them. The only catch is that they are all on the shady north-facing side of the street, which may explain why they have not been snapped up yet.

Nobody could describe BedZED as pretty. But it is certainly market-tested. The value of the smallest apartments has shot up from £106,000 to £170,000 in little more than a year. With a selection of homes from the little one-bed examples to a full four-bed town house — with reasonably-sized front gardens at ground level — BedZED is likely to become very popular, not least because its sustainable credentials mean tiny utility bills — about £150 all in for a year, in the case of a one-bed flat. Heating is only required in very cold weather.

The point is that BedZED shows it can be done. It works, people are happy there, you can square the circle of development and sustainability and have a worthwhile capital investment.

So, when is the next one going to be? And where? Because the whole housebuilding industry should be looking at this prototype and seeing what it can learn from it. It’s not just desirable. It’s vital.

Peabody Trust, 020 7922 0239; www.peabody.org.uk/marketing; Stirling Prize, www.architecture.com

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