If you walk around much of inner-city residential Liverpool, you soon find yourself asking, "What catastrophe hit this place?" On investigation, you'll find it wasn't merely the haemorrhage of jobs at the docks or the depopulation of the city, but something much more recent. In any of the six areas selected under New Labour for "housing market renewal" you can see tinned-up street after tinned-up street, with wastelands in between, and people still living among it all. Although the depredations of Housing Market Renewal Pathfinders have been ghastly all over the north of England, there is nothing to rival Liverpool for the sheer scale of destruction, dereliction and waste. How did it come to this? And can the process be stopped?

In fact, typically for Labour councils after the collapse of the speculative boom, the current strategy is to hope desperately that the process can be restarted. Pathfinder has been officially abandoned so, to some fanfare last year, the mayor of Liverpool, Joe Anderson, and the then housing minister, Grant Shapps, agreed to save and refurbish 16 houses in the condemned "Welsh Streets", in Toxteth – out of about 500. Yet a recently submitted planning application proposes the demolition of 439 houses and a housing association scheme that will replace them with only 152.

George Clarke, of Channel 4's Great British Property Scandal, was appointed "empty homes adviser" to work with the scheme, but he has broken ranks – calling it "the social cleansing of an area not only currently occupied, but very much in demand". Given the pace of redevelopment that Liverpool saw during the boom, let alone now, the area can be expected to remain in half-demolished limbo indefinitely. The exceptionally dubious rationale for Pathfinder, a programme to clear frequently viable housing and its inhabitants for the purposes of "renewing" insufficiently profitable local housing markets, is still unquestioned. And the results – the scarred, often shocking landscapes around the centre of Liverpool – do not seem to have forced anyone to change course. But one of the most prickly issues is how this all happened in the first place without much resistance.

Last summer I visited Homebaked, a bakery in Anfield converted via Liverpool Biennial funding, cunningly diverted by the artist Jeanne van Heeswijk into the base for a community land trust, all designed to gradually reverse the destruction of the area. I walked there from the centre of town, and saw how the metropolitan civic pride of the city centre gives way quickly to a strange mix of insular 80s low-rise, low-density housing, vast parks created from wasteland in the same decade, and eccentric Arts and Crafts buildings like the Mere Bank pub or the Everton Library – beautiful and derelict in the middle of it all. Then you come to residential Anfield, and a seemingly endless swath of blight around the football stadium.

The houses here are those that were omitted by the slum clearance schemes of the 1960s, for the obvious reason that they're large and well-constructed; the infrastructure is sane and viable (if obviously depleted by the area's clearance) – a high street and the large Stanley Park, with the recently renovated Gladstone Conservatory.

At one corner, the streetline of grand and rotting terraces is suddenly broken by the new houses – the Pathfinders themselves, and the reason for all this. Apart from increased parking space created by their cul-de-sac like arrangement, their smaller windows and the poverty of their detailing and design, it's hard to see the difference – nondescript redbrick terraces and flats, devoid of character, devoid of offence.

It's bizarre, given that the entire rationale of Pathfinder was to bring the middle classes into the area: surely the small middle class of Liverpool, based usually in education and media, would have far preferred gentrified Victorian townhouses to this suburban-looking newbuild. How could this possibly have been worth it? How could anyone have been convinced that it would be?

The event at Homebaked, sponsored by Liverpool Biennial, involved me and other speakers talking about the crisis in housing. A long-term resident took issue with a lot of what I'd said about Pathfinder, which (I thought uncontroversially) I'd described as social cleansing. Although she opposed the demolitions, she didn't see it that way. The area had been practically left for dead before the Pathfinder programme, she pointed out – this was the first time anyone in the area had been talked to or consulted in years.

While I pointed out the iniquity of dragging council tenants out of potentially lucrative inner-city areas, she – as an owner-occupier – pointed out that her friends rang her up from the suburban council houses they had been moved into, saying, "Guess where I am? In the garden of my nice new house." It was obvious that the area's residents didn't fight Pathfinder because, on one level, a lot of them didn't want to – Anfield had been run down so ruthlessly that it was in many cases a relief to leave. The iniquities of the scheme had since become obvious, hence the action to save the area via the community land trust – but this hadn't been so from the outset.

This was fair enough – but setting owner-occupiers against council tenants seemed like the sort of breach in solidarity that made this disaster possible in the first place. Although in Welsh Streets there is a very active local campaign against demolition, resistance to Pathfinder has often been spearheaded by Save Britain's Heritage (which has bought condemned houses in the city) or Biennial-funded artists, rather than the gutted local communities – so partially achieving, ironically, Pathfinder's original aim of bringing the middle classes into areas of "low market demand".

If working-class areas are to defend themselves, they need confidence, both in themselves and in the places they live, otherwise the whole grim process will go on, with councils making the same mistakes and the same lives being destroyed, without interruption.