The windows are shattered in a section of 98 abandoned houses in the suburban industrial city of Downey. Doors bang in the November breezes at most of the houses which are valued at $85,000 and up. Abandoned for more than six years, the houses have become hangouts for gangs and prostitutes.

The owners were forced to move when their property, in the path of the proposed Century Freeway, was taken by the state. Since then, the controversial. $670 million highway project has been held up by by a bitter court fight being waged by a coalition of groups ranging from the Sierra Club to the NAACP.

This week, the Department of Transportation announced its approval of a proposal that will give a new lease on life to the abandoned dwellings.

The state plans to sell the houses to the Watts Labor Action Community, which will move them to south-central Los Angeles, rebuild them and lease them to low-income renters. The announcement marks the culmination of a series of efforts aimed at resolving a long-standing problem.

A lawsuit charging the state with failing to file an appropriate environment impact statement was settled out of court last month, and now, with the go-ahead from DOT, the state plans to sell the 98 homes to the Watts community agency for a total of $110,000. The houses will be moved into the Watts area, where they will be rehabilitated by young residents of the area being trained in construction skills.

Once completed, the houses will be leased to local residents. Rents, based on income, will be set as low as $75 a month - for houses that otherwise would rent for $500 or more.

The low rents are covered by a federal subsidy that allows renters to pay one-fourth of their monthly incomes for housing. After living in the refurbished houses for 20 years, the renters can own them free and clear. It is the only such program of its kind in the country, officials said.

Land for the project was acquired by the Watts Community Labor Action Committee with a $2 million loan from the United Auto Workers. The houses are being purchased with other loans and money from community fund-raising effrots.

The demand for the houses far exceeds supply, so new residents will be selected by lottery. People with three or four children will be placed in a lottery for three-bedroom houses. People with more children will participate in the four-bedroom lottery, residents for two-bedroom houses will be picked in a separate lottery.