Every second Monday of the month, a small group of volunteers meets in the training room of a Birmingham supermarket. They discuss what has long seemed to many of their friends a crazy and probably doomed idea: how to excavate a contaminated 40-year-old waste dump, create an urban marina, restore three miles of derelict canal and build several new bridges and locks.

Last month, however, the meeting of the 18-strong Lapal Canal Trust committee was joyous. After 20 years of trying to restore this short stretch of the 200-year-old Dudley No 2 canal, permission had finally been granted, they were told.

What’s more, a feasibility study showed that the plan – which would link the suburbs of California and Selly Oak by water – could be a catalyst for nothing short of the economic and ecological renaissance of a large area of south Birmingham.

The Lapal Canal Trust has ambitious plans to convert the Greenway into a working canal. Left: how it looks now, Right: an artist’s impression of the transformation. Images: Lapal Canal Trust

The new canal will generate jobs but also provide space for new houses, as well as pollution-free walking, boating and cycling routes. The marina for 60-100 boats will stimulate businesses and bring in tourists. The wildlife corridor created along the canal will attract herons, otters, fish and waterfowl. And although the whole project will cost about £5m, the study said it would pay for itself in six years.

“It will improve life in the city. It will complete an old canal loop around the city – we owe it to the future to restore it. We have support from business, the community, the university, developers and everyone. No one is objecting and we have nearly raised the first £250,000 – enough to start work,” says the Lapal trust CEO, Hugh Humphreys.

Q&A What is the canal revolution series? Show Hide Few things symbolise the way our cities have transformed more than canals. Around the world, cities have woken up to the power of their urban waterways: from Milan to Manchester, the former economic arteries of industry are being turned into corridors for walkers, boaters and wildlife. Cafes and restaurants are proliferating and canalside living is newly chic – and newly costly. As commercial interests muscle in on the last great undeveloped bit of Britain’s cities, Guardian Cities and the Observer wanted to take stock of a crucial moment in history, when we still have a choice: whether to turn canals into sanitised enclaves of wealth, or preserve them as a precious resource for all. Chris Michael, Cities editor

The Lapal plan is one of at least 80 canal renaissance projects currently making British towns and cities suitable for populations seeking tranquility, leisure space and new ways to move around. Just as canal-building drove urban growth in the 18th and 19th centuries by linking urban areas and stimulating trade, a new mania for canal developments is today reshaping cities by offering oases of calm in fastest-moving town centres.

The restoration of the canals in the 1950s and 60s was thanks to a remarkable act of defiance by unpaid volunteers Mike Clarke, historian

It’s not just happening in Britain. Canal restoration, building and development is now a global phenomenon, with billions of dollars spent on projects annually around the world. From Paris to Milan, waterside developments can command 20% premium prices, and many cities with extensive canal networks, such as Bruges, Ghent, Amsterdam and Hamburg in Europe, Fort Lauderdale and Cape Floral in the US, and the Gold Coast in Australia have attracted huge investments for canalside housing and leisure.

In Seoul, the renovation of the Cheonggyecheon Stream – an old sewerage ditch covered by a gigantic elevated highway that was torn down and restored with clean water, plants, wildlife and attractive landscaping – has been credited with reorienting the city (as well as sparking a property craze whose effects have not all been positive).

Cheonggyecheon Stream in Seoul, South Korea. Photograph: TwilightShow/Getty Images

But few countries have as many urban canals as the UK, a legacy of British industrial might – and now a golden opportunity for transformation. Some, such as the Aldcliffe yard development in Lancaster, will see just a few expensive houses built on old industrial canal works; but many seek to create large new “liveable” urban communities in what were some of the Britain’s polluted places, such as Wolverhampton, Leeds, Manchester, Lancaster, Glasgow, Liverpool and Birmingham.

Together, they are removing some of the last vestiges of the dirty old industrial urban economy and steering cities towards a future based on inner-city living, retail, leisure and heritage.

Middlewood Locks in Salford, Manchester, was the site of an iron-rolling mill, railway sidings and goods sheds. It is slated now to become Manchester’s “most vibrant” inner-city area: a £700m canalside development of homes to buy and rent, with shops, nurseries and gyms.

Equally, Hale Wharf in Tottenham on the side of the Lee navigation in north London, was the site of furniture factories, gunpowder and timber stores. Soon it will have 500 houses in a “canalside realm”.

A visualisation of Hale Wharf in Tottenham Hale. Image: Muse Developments

Britain’s most ambitious development is probably the Icknield Port Loop development, two miles from Birmingham city centre, where a massive 43 acres (18 hectares) of land between two of Britain’s oldest canals has been cleared for a new neighbourhood of 1,100 houses, shops and leisure facilities. Old pictures show Port Loop at the height of the 19th-century industrial revolution with belching chimneys, wharfs, saw mills and glassworks, set among fields. The first new homes are now selling for £380,000 and up.

Port Loop is a 43-acre, canalside site in Birmingham, just 15 mins from the city centre offering 1,150 new homes, retail and leisure spaces. Image: Places for People and Urban Splash

Regeneration of the canals on this scale was barely imaginable even 50 years ago. Unless they moved goods around, canals were regarded by government as polluted ditches, good only to be drained or filled in. Only the largest canals had survived the car economy. Anyone who took a boat out on the inland waterways for pleasure was considered eccentric.

Three things unexpectedly changed everything. A postwar infant canal leisure industry emerged; dozens of passionate heritage charities like the Lapal trust voluntarily restored many of the old waterways; and water proved to be the vital ingredient to kickstart a new, property-based canal mania.

“The restoration of the canals in the 1950s and 60s was thanks to a remarkable act of defiance by unpaid volunteers against the authorities,” says canal historian Mike Clarke.

“Volunteers were vital. It’s unlikely there would be many canals today without them. The government, many influential people, and the British Waterways board, were all happy to see the majority filled in. But the volunteers challenged them and started to restore them without any authority,” says Clarke. “They told the government, ‘if you want to complain, take us to court.’”

The Union canal at Viewforth, Edinburgh. Photograph: Ian Rutherford/Alamy

Government dared not take on the small army of volunteers, co-ordinated by the stroppy, infant Inland Waterways Association, the charity that since 1946 has promoted the revival of the UK canal system and whose members gave up weekends and millions of hours of free labour to dig out, restore and lobby for the country’s 6,500 miles of canal.

The restoration of Britain’s canal system is in full flow but there is so much left to do Alison Smedley, Inland Waterways Association

“People had more leisure time, better education made them interested in their history, and the small English canals which had remained virtually unaltered for 200 years were of an ideal size for pleasure boats,” Clarke says. “They formed isolated stretches of peaceful country within the urban environment. Planners eventually saw them as an asset, and government at last understood their potential for leisure.”

Once the canals were cleaned up and restored by the volunteers, regeneration followed. By the 1990s public funding from Europe and Westminster was unlocking billions of pounds of private capital. The result was that those polluted urban ditches, blocked off from the public and often filled with shopping trolleys and waste, became the bright new modern face of central Manchester, Glasgow, Bradford, Gloucester, Birmingham, London and dozens of other cities.

“The job is only half done in Britain”, says Alison Smedley, policy officer of the Inland Waterways Association. “The restoration of Britain’s canal system is in full flow but there is so much left to do. There are about 4,700 miles of navigable waterway left in Britain, of which nearly 500 miles have been restored in the past 50 years, and 500 more miles are under active restoration. There are still about 1,800 miles left to be restored, although many [canals] have been filled in and are unlikely ever to be reclaimed,” she says.

And just as canals linked cities and shaped the way they grew in the 18th and 19th centuries, they are now shaping urban renewal today. Canals have never been more popular, says the Canal and River Trust (CRT), the government-part-funded charity set up in 2012 to take over and manage the 2,000 miles of state-owned canal formerly run by British Waterways. It calculates that about 10 million people a year visit the canals to fish, walk, cycle, observe wildlife or go boating.

“There are now more licensed boats using the canals than at the height of the industrial revolution,” says a spokeswoman.

A flotilla on the Forth & Clyde Canal at Speirs Wharf in Glasgow. Photograph: Peter Sandground

In addition, canals have become a real alternative for people unable or unwilling to buy city property. The 100 miles of canals that run through London are now lined with vessels, and the city, with around 4,000 boats lived on by possibly 10,000 people, is thought to have a larger permanent floating community than Amsterdam with its 3,000 houseboats.

Ten years ago 10% of the boats on British waterways were used as primary residences. It is now 26%, says the CRT.

But concern is mounting that the CRT, which controls 11% of all moorings, is “gentrifying” the canals, reducing the number of long term public moorings and offering few facilities for people who want to live on boats.

“There are not enough moorings, definitely,” says Beryl McDowall, publicity officer for the Residential Boatowners’ Association, which estimates 15,000 people now live afloat. Moorings [which were public] are going into the hands of private ownership and owners don’t want the boats,” she says.

Speirs Wharf, Forth & Clyde Canal, Glasgow. Photographs: Shine-a-light/Gerard Ferry/Mike Dennison/Alamy

“Waterside developments often lead to a reduction in the provision of mooring space for boats. When the CRT sells canalside space to developers the moorings often go. They are creating moorings for businesses but not for people”, said a spokesman for the National Bargee Travellers Association.

“There is an acute and chronic lack of basic facilities on London’s waterways such as potable water taps, waste disposal facilities (for domestic waste, recycling, chemical toilets and motor oil), landside toilets and landside showers. For example there are only 17 water taps, 10 chemical toilet disposal facilities and 10 rubbish bins in the CRT Greater London region,” said the NBTA.

“The CRT is trying to force us off the water and turn the waterways into a money-making business”, said one boater in London, who asked not to be named.

This is disputed by Joe Coggins of the CRT. “There has been no reduction in moorings, but in a few isolated places we have given up moorings. We work with developers to keep moorings available.”

“This is a golden age for the canals. We welcome everybody on them. There has never been so much demand for moorings and we try to find a balance between those who want to move around and those who want permanent moorings. It’s an acute challenge in London.”

Canal development may have changed the face of cities but the quality of building has been patchy. The Gas Street basin in Birmingham city centre, which is the hub of a labyrinth of 200-year-old canals, wharfs, quays and locks, is now a corporate honey-pot, with restaurants and bars, civic buildings, luxury flats and hotels.

Yet a few miles away the Black Country canals of Wolverhampton, Dudley and Walsall see few boats. Many of these old waterways are lined with semi-derelict warehouses, recycling and scrap-metal yards, bottling plants and rusting industrial lifting gear.

There is a real opportunity for high quality inner-city development and nature to flourish together Simon Atkinson, Birmingham and Black Country Wildlife Trust

Outside prestige city centre developments, many canalside buildings have been built with little sensitivity to either heritage or environment, says Smedley. Developers, especially in the 1970s and 80s, tried to cram in as many identikit houses as they could, and the result has in some places been an architectural mess with poor quality housing aimed at young professionals rather than families or the old, and low environmental or heritage value, she says.

“Not all developments can be said to be good. A lot could have been much better quality. It’s getting better but mistakes were certainly made,” says Smedley.

“The golden age of canal restoration was 20 years ago. Around the millennium, around 200 miles of canal were restored, many with EU and government money. Many old routes were reopened, urban canals were developed, and new canals linking waterways constructed. Now the money has dried up. Our concern now is that urban sprawl along them will destroy the rural areas between cities,” she says.

Canalside regeneration has often led to gentrification and the takeover of places by the affluent. Wigan Pier, the semi-derelict site on the 18th century Leeds-Liverpool canal which George Orwell made famous in his 1937 portrait of northern living conditions, is to be transformed. In place of Orwell’s tripe shops and pubs, the council and developers plan a “multi-leisure” complex of gated townhouses, delis, a food hall, and a gin distillery.

Certainly, restoration mania has given rise to tensions between developers and old-guard canal-users, and volunteers with developers accused of taking advantage of their voluntary work, says Mike Clarke. “Sometimes developers do things on the cheap which can cause upset. They see people on boats as easy targets to make money, charging them excessively. Sometimes they don’t recognise the heritage value of the canals. But they accept that development must happen.”

“Almost unnoticed, the canals have become important sanctuaries for urban and rural wildlife,” says Simon Atkinson, head of conservation at the Birmingham and Black Country Wildlife Trust. “They effectively form a huge linear national park and are incredibly important wildlife corridors, very high in ecological value. They are like long ponds.”

Otters, water voles, kingfishers, ducks, herons, fish, dragon- and damsel flies, even rabbits, are seen on the 100-odd miles of Birmingham canals, some of which are classed as local nature reserves. “There is more wildlife on these canals than there is in many industrial farming landscapes. There has been dereliction on these canals since the 1880s. It has led to opportunities for wildlife to take hold,” Atkinson says.

“But we are at a crossroads. Water pollution has been largely stopped but planning can be weak and some places have been developed terribly, allowing wildlife no access to the water, no open spaces.

The dramatic transformation of Britain's canals – photographs then and now Read more

“If development is done well, it can enhance nature. The canals have never been more important, but it could go the other way. There is a real opportunity for high quality inner-city development and nature to flourish together.”

Back in South Birmingham, work is preparing to start on the first stage of the Dudley canal. Where it was once the dream of a few passionate people interested in urban heritage, today it is regarded by the city as an important link between the industrial past and the leisure-based future.

“Many people still have no idea that the old Dudley No 2 canal ever existed, let alone that Selly Oak was a hive of Victorian industry,” says Hugh Humphreys.

Their surprise – and probable delight – when in a few years’ time they find canal boats motoring past Sainsbury’s supermarket at a stately 4mph, and see otters and kingfishers at the bottom of their gardens, may just be worth the 200-year wait.

The canal revolution series looks at what our changing waterways reveal about modern British cities. Follow Guardian Cities on Twitter, Facebook and Instagram and use the hashtag #canalrevolution to join the discussion, or sign up for our weekly newsletter