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Housing

London housing crisis 'breaking borough budgets' as councils warn of £700m funding shortfall

The surging costs of Londoners living in temporary accommodation is pushing finances in the English capital to the brink, London Councils have warned in budget plea to government

An aerial shot of central London

London is the capital of England's temporary accommodation crisis. Image: Collins Lesulie / Unsplash

London’s housing crisis and homelessness pressures are the “fastest-growing risk” to council finances, local authorities have warned, in the face of a £700 million shortfall.

Record-high numbers of households living in temporary accommodation is pushing council budgets to the brink across the UK with London the worst affected area.

Almost 18 out of 1,000 households in London live in temporary accommodation compared to 2.5 households in the rest of England, according to government statistics.

That is pushing several London councils to the brink of bankruptcy, councillors said, with a collective budget shortfall across London’s 33 boroughs of £700m next year.

It is estimated that boroughs will overspend on their budgets by £600m in 2024-25. Homelessness is set to play a big part in that overspend with local authorities paying £250m more than budgeted. That’s on top of a £208m overspend last year.

Councillor Claire Holland, chair of London Councils, said central government must act to shore up local authority funding at next month’s Budget, which Keir Starmer has already described as “painful”.

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The government has committed to multi-year spending reviews to give councils long-term certainty but local authorities need greater funding to deal with the housing crisis, including doubling the £157m they receive through the homelessness prevention grant.

“The housing crisis is having a devastating impact on the lives of people in London and wreaking havoc on town hall finances across the capital,” said councillor Holland. 

“Housing and homelessness pressures are the fastest-growing risk to London borough finances. At a time when we need to invest in social housing and support homeless Londoners, boroughs are facing an unrelenting squeeze on our resources. The unavoidable reality is that spiralling costs and years of underfunding threaten to break boroughs’ budgets.”

An estimated 175,000 Londoners are living in temporary accommodation, equivalent to one in 50 residents in the English capital.

London accounts for more than half (56%) of the homeless households living in temporary accommodation in England while on average there is at least one homeless child in every London classroom. 

There has been a 10% increase in the number of households living in temporary accommodation in London, rising to 60,959.

With a shortage of properties, councils are left with no option but to fork out on expensive hotels and other unsuitable accommodation.

That has seen spending balloon to around £3m a day – or £90m per month – rising by 40% in a year.

London Councils have called for the government to remove the housing benefit subsidy gap, which limits the amount of funding local authorities can claim back from the government and has been frozen since 2011.

Data from 24 London boroughs shows a gap of £96m between what councils are paying to provide temporary accommodation and what they can claim from the government.

Without further funding, London local authorities will be unable to build new social housing to meet Labour’s 1.5 million home target.

London Councils said three London boroughs were facing the “unprecedented” prospect of running out of housing revenue account reserves needed to maintain and build social homes in the next four years.

Councillor Holland said: “The current outlook is bleak, but we are committed to working with the government to find a better way forward. The upcoming Budget is a crucial chance for the government to restore much-needed stability to council finances and the local services we provide. This will enable boroughs to play our part in tackling the capital’s housing crisis and driving economic growth in London and across the country.”

The warning of overwhelming housing pressures from London has been echoed elsewhere in England.

Shelter analysis of government statistics recently revealed councils spent £2.3bn on temporary accommodation between April 2023 and March 2024.

The District Councils Network has been calling for more support for local authorities with Eastbourne Borough Council leading the charge.

The local authority said it is spending the equivalent of 49p in every £1 it collects in council tax on temporary accommodation.

Councillor Stephen Holt, leader of Eastbourne Borough Council, told the Big Issue the issue is a matter of ”utmost urgency” which will see more councils face effective bankruptcy without action.

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