The Labour leadership has suffered its first conference defeat - in a debate on housing policy.
Prescott said the amendment was "nonsense"
Delegates voted for a change to policy on borrowing rights for councils on housing despite John Prescott saying the move would create "real problems".
The vote overshadowed new plans to
build 10,000 low cost homes for first time buyers by using surplus government land.
The homes could be put on the market for £60,000, under the proposals.
Mr Prescott was jeered as he branded the proposed change to housing policy a "nonsense".
But delegates voted through the demand for a level playing field between councils and housing associations over borrowing rights.
Mr Prescott said the move would force him to either ask Chancellor Gordon Brown
for £5bn more to improve run down homes or cut the government's "decent homes"
Earlier, Mr Prescott said average house prices for London first time buyers had trebled since 1997.
They now lie at £218,000 and similar increases have taken the nationwide average to £143,000.
Mr Prescott said construction costs for social housing had risen by 60% since 1997.
That had been a "gravy train" for some builders, he added.
"The costs here are much higher than in Europe," he said. "Even in Scotland, homes cost less to build. That can't be right."
But he acknowledged land prices too had been on the up.
Under the new scheme, surplus land owned by public sector bodies will be set aside for homes for first time buyers.
Mr Prescott explained: "We own the land. We don't sell it off. We keep it in trust, but lease it for new housing.
"So the first time buyer pays the cost of building the house, not the full cost of the land."
The details of the plans are still being worked out and are due to feature in Mr Prescott's department's five-year plan later this year.
Housing Minister Keith Hill said only those who could generally not afford mortgages would be eligible for the new homes.
There was "real urgency" over the problems for first time buyers, he said, and the proposal was a short to medium term way of tackling the issue.
For the longer term there were already plans to build thousand of new homes, he said.
Mr Hill said there had been talks, both directly and through intermediaries, with house builders over the plans.
"We are throwing down a challenge to house builders in this country," he said.
He insisted the £60,000 costs was achievable, saying German firms produced two or three bedroom homes off site for that cost.
Mr Hill said he was not claiming the biggest house builders were ripping people off.
But he added: "If the traditional house building industry won't do it, then we will have to look elsewhere."
It not yet clear exactly how profits will be divided when first time buyers come to sell the houses.