This sounds like the reality show from hell: seven adults and six children, not all known to each other at the start, get together to design and build six houses for themselves. They borrow money, buy a piece of land with no planning permission attached, hire architects, other professionals and a building contractor. They negotiate with each other as to who gets what bit of the project for what money. Six years later they move in. The builder has recently presented the final bill, making a total construction cost of £1.8m, against earlier, inevitably optimistic, estimates of £1.45m. "We've only just figured out how much each of us will pay," says one of the residents, Simon Bayly.

Their development, called Copper Lane, has no private gardens or washing machines, but shared open spaces, a laundry and a communal room for parties, music and games, which have to be collectively managed and maintained. The project could have been a fusion of Big Brother, Changing Rooms and, for the bravado with which those involved seem to have taken on a possibly impossible task, The Apprentice. Yet, far from sinking into a stew of acrimony, they seem to be on as good terms as ever, as they discuss who gets to use the new communal leaf-blower.

It is, as far as they know, the first example in London of co-housing, a concept developed in Denmark in the 1960s, although Bertrand Russell floated a similar idea in an essay in the 1930s. The best-known example in Britain is Springhill, a 34-home settlement in Stroud, Gloucestershire. In its fullest form residents cook for each other in a shared kitchen, and their guests can stay in common spare bedrooms. Regular communal cooking won't happen at Copper Lane, in which respect "it's not hardcore", says the architect Simon Henley. "But it has been pretty hardcore to share the construction process, and to get this far."

Copper Lane's upper floorplan. Photograph: Henley Halebrown Rorrison

His practice, Henley Halebrown Rorrison, was chosen after 10 were interviewed. They were selected, says Bayly, because of their "sociological vision". Henley says that the architecture of other co-housing schemes is often indistinguishable from conventional homes, apart from the addition of the communal facilities. If the residents wanted "to live that life", he felt, "we needed to find a new typology for it".

It was necessary to judge "the extent to which they expose and share, and the extent to which they are private and individual. It's not about a forced communality, but allowing people to share if they want to," Henley says. The architects also had to achieve some sort of equality between the houses, in a situation where some parts of the development would be different from others. The site is placed in the backlands of north London terraces, surrounded with rear gardens. Some parts will inevitably have better light or aspect than others. "There was always going to be a north corner," says Ken Rorrison of HHbR. So it was not a case of making each house exactly the same, but of balancing and compensating the attractions and disbenefits of each.

The idea of building a conventional terrace was quickly discarded. The architects spent longer considering a single large villa, carved out internally into six homes, before settling on a concentric arrangement. In the middle is the single-storey communal hall whose flat roof makes a first-floor courtyard. It is wrapped in the six homes, which rise two or three storeys and are in turn wrapped by a perimeter garden.

'Interiors can have their kitchens on the top, middle or ground floor. They can be extrovert or enclosed.' Photograph: Ioana Marinescu

It can be read as a single structure, with a consistent palette of pinkish-cream brick and timber cladding, and an irregular roofline that goes up and down as it tries to minimise its impacts on the neighbours. It can also be read as a collection of houses, although it's not always clear where one ends and the next starts. At times balconies and windows face into the court; at others they are turned away, to give privacy and seclusion. The interiors are also consistent in their finishes – unpainted plaster, Douglas fir, screeded floors – but they achieve a surprising variety in their arrangements. They can have their kitchens on the top, middle or ground floor. They can be extrovert or enclosed. They can look into the courtyard and join the co-housing microsociety, or they can look into treetops and feel miles away.

One of the pleasures of the project is the multiplicity of ways of occupying it. It's like a small castle or a large climbing frame, something that can be clambered over and explored. Each bit of the encircling garden, although the landscaping is still raw, already feels different from the next. Each house has two or three entrance doors – you can come and go through the communal hall, or through a separate entrance. Your neighbours can know your movements, or not.

Copper Lane is about achieving "a balance of what is good for the group and what is good for the individual", says Giovanna Mabanta, who with her partner initiated the whole idea. The building has some flawed details – it could do with some more handrails on the stairs, for example – but it convincingly realises this balance. It has happened, she says, "against all the odds. You had to be tough to decide things. Group work is hard." Decisions were not by majority, but consensual. Anyone could oppose an idea but they would have to propose an alternative. They couldn't just say no.

Different people would have their own skills and knowledge, for example in design or finance, and would contribute them. Some have psychotherapeutic experience, which may have helped. The level of mutual support seems to have been extraordinary: "People were lending each other money, six-figure sums, on trust," says Bayly. Ultimately "everyone knew we were doing this for a good reason. If you didn't share the ideal, why would you sign up?"

Houses can look into the communal courtyard or ‘into treetops and feel miles away'. Photograph: Ioana Marinescu

The outcome is a vision of city life in which, for example, the garden is a far richer place than it would be if it were divided into six private handkerchiefs. Others, such as children at a nearby Steiner school, are invited in. It has its advantages for almost every stage of life, from childhood to old age, and one of the residents has said she only wants to leave feet first. It doesn't require everyone to be close friends but, as Bayly puts it, "really good neighbours. We've seen each other in times of stress, but we don't have to have everything in common. That's what a community is."

"If we can survive the building of it," says Mabanta, "we can have a peaceful, harmonious life. It's an example for everyone."

It has the added advantage of being cost-effective, as other houses in the area of similar size can sell for 40% more than the cost of those at Copper Lane, which is not to say it's exactly the solution to southern England's notorious housing problems. It is too singular for that, the creation of an unusual group of individuals who had the advantage of having some property to start with. But, compared with the stacked-up investment units that pass for much new housing, it's an appealing model.