Jayne Dowle’s sketch: Blackpool

Thursday morning on Waterloo Road in Blackpool and the street theatre would be worth paying money for. A young couple are arguing in front of the betting shop. He's staggering about waving a can of lager. She's yelling, ponytail bobbing up and down with indignation: "No, you are not having money to gamble with, I'm going to pay my rent!" It's like Punch and Judy crossed with Jeremy Kyle.

This is not the Blackpool of sequins and Strictly Come Dancing. This is not the Blackpool Tower, celebrating its 120th anniversary this year, or the stag and hen parties which everyone complains about, but not many businesses could survive without. Nor is it the manicured calm of the promenade "up North", with its welly-wearing dog-walkers.

It's the Blackpool which lies beneath the hype over the millions of pounds spent regenerating the public realm. And it's this Blackpool which poses the biggest challenge, believes Susanne Johnson, who owns Johnson's Wool & Needlework, in Bond Street, just off Waterloo Road. "Places like the seaside are national gems, and for them to be left for people with behavioural issues is unacceptable," she says.

The Lancashire resort is putting £2m into a new "tourism academy" in a bid to achieve World Host status, one of the highest of global accolades. Yet, it has some of the worst social conditions in the country. Worklessness, alcohol dependency, drug use and poverty contribute to the highest concentration of deprivation in England, according to Blackpool Community Safety Partnership. Locals say that much of this is caused by "benefit tourists" who pitch up from elsewhere, expecting life here to be one long holiday. Clearly, it isn't.

There are 3,500 HMOs (houses in multiple occupancy) in Blackpool, says Steve Matthews, head of strategic housing and planning for Blackpool Council. And amazingly, not one of them has planning permission to operate as such. His defence? "The sheer volume of numbers have been extraordinarily difficult to track". His priority is to crack the dysfunctional relationship between poor housing and social problems, so the council is now implementing impressive interventionist measures.

Selective licensing which places statutory requirements on landlords to ensure their properties are habitable, has been introduced around Waterloo Road, optimistically rebranded South Beach. Planning permission is prioritised for owners who wish to turn former guest-houses into homes or divide larger properties into flats, with the stipulation that these should have at least two bedrooms to prevent yet more bedsits. The council itself has renovated several South Beach properties, on Rawcliffe Street, for example. At Queen's Park, tower blocks have been demolished to be replaced by 200 new homes, mostly social housing. And the council is seeking private finance to contribute towards setting up a wholly-owned housing regeneration company.

"Those houses on Rawcliffe Street look nice, but what kind of impression does it all give to visitors?" says Susanne Johnson. "I don't like being in the same street as people who are drunk in the middle of the day – but if it was full of niche, independent shops it would be a draw for visitors and locals."

She is campaigning to persuade the council to allow more "pop-up" shops to fill the empty units, including the market, which closed down in January leaving more than 20 traders bereft. "We have 17 empty shops," she explains. "A lot are big empty shops, with absentee landlords who aren't a bit interested in renting out. But around Bond Street, Waterloo Road, and Lytham Road we already have a dolls house shop, a comic collectors shop, a shop selling model trains. We could turn this into a real shopping destination for visitors."

Talbot Gateway

Johnson and Blackpool Council have their differences. But they agree on one thing; investing in retail is one way for Blackpool to move forward. A couple of miles to the north of Waterloo Road is the huge new Sainsbury's, part of the £220m Talbot Gateway Central Business District scheme, delivered in partnership with Muse Developments. Its soaring glass prow towers over the Brutalist monolith of Wilkinsons and dwarfs the railway station. It's like a brand-new shiny ride introduced to the Pleasure Beach, casting all around it into shabby relief.

"It is easy to forget that just a few years ago this area was hugely run-down while it is now a modern, friendly area which is ripe for economic growth," says Cllr Fred Jackson, the council's cabinet member for urban regeneration.

Where was Cllr Jackson looking? A few streets away, the 'professional drinkers' gather outside Freddie's bar, as a condom blows forlornly across the pavement. In the Galleon Coffee Shop, opened in April by Stephen Pierre, a passionate supporter of Blackpool regeneration, employee Grant Patrick, 23, is exploding a few myths. "I know of loads of places where the employer can't even afford to pay the minimum wage," he says. "If they did, they would go out of business and then people wouldn't even have a job to go to. They just aren't making enough money themselves."

Foxhall Village

There are issues here which affect every town or city, and demand action at a national political level. However, encouraging industrious young people to stay in Blackpool is a major motivation behind the ambitious new £50m residential development of Foxhall Village. This comprises 400 new homes off Rigby Road (starting at £95,000 for an apartment), built by Hollinwood Homes, including 70 units in conjunction with social housing provider Great Places.

It is nothing short of revolutionary for Blackpool – new homes, a few steps from the promenade on a site pulled together from the former illuminations depot, car and coach parks, a gasworks and a bingo hall. "The one stipulation is that you can't rent these homes out," says Lorin Smith, manager at Entwistle Green estate agency, which is handling sales. "They are designed specifically for owner-occupiers. So far there has been a complete mixture of buyers, from a London Underground Tube driver retiring here to families upsizing from two-bedroom terraces."

In a year which will be characterised by endings – Blackpool airport, the market in South Beach, and, on 9 November, the Tower Lounge, legendary destination for generations of stags and hens – Foxhall Village could represent an entirely fresh beginning. "The reality is that we've recognised the housing agenda in Blackpool is crucial to the long-term future of the town," says Steve Matthews. And that, more than shiny new Sainsbury's or sculpture on the prom, has the potential to put this place on the map for the right reasons.

@jaynedowle Every month, Jayne Dowle will be visiting a different location in the North West