Homelessness and the housing crisis are having a “devastating impact” on Londoners and “wreaking havoc” on boroughs’ finances, councils have warned.

“Skyrocketing” numbers of homeless people requiring temporary accommodation and the growing strain on social housing budgets means several local authorities in London are edging closer to effective bankruptcy, it is claimed.

In its submission to the Treasury ahead of the Budget on October 30, London Councils, the cross-party body which represents all 33 councils in the capital, said housing and homelessness pose the “fastest growing risk” to the financial sustainability of its member authorities.

London Councils estimates more than 175,000 individuals are now living in temporary accommodation arranged by their local council, equivalent to one in 50 residents in the city.

This means on average there is at least one homeless child in every London classroom, with London accounting for 56% of England’s total number of homeless households in temporary accommodation.

London Councils’ latest survey of members showed the number of homeless households living in temporary accommodation rose by 10% to 60,959 between April 2023 and April 2024.

The shortage of available accommodation has made councils increasingly reliant on expensive options such as commercial hotels, the body said, with London authorities collectively spending around £90 million per month – approximately £3 million every day – on temporary accommodation.

This is an increase of nearly 40% over a year.

London Councils forecasts this will help drive boroughs’ collective budget shortfall across all services to at least £700 million next year unless the Government provides more funding.

The group said stabilising council finances is critical to councils’ efforts to help “tackle the housing crisis, drive economic growth, and invest in the preventative services that bring long-term benefits to Londoners”.

Claire Holland, chairwoman of London Councils and Labour leader of Lambeth Council, said: “The housing crisis is having a devastating impact on Londoners’ lives and wreaking havoc on town hall finances across the capital.

“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.

“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.”

London Councils said it welcomed the Government’s commitment to multi-year financial settlements and ending competitive bidding for funding.

However, the body argued that while these changes will improve funding certainty, they will not in themselves address the immediate crisis in local government finances.

London Councils argued that a “failing” local government sector will only “exacerbate broader economic and fiscal challenges” as councils and the services they provide “can be powerful tools for growth”.

The body added ongoing financial pressures on councils would also be likely to increase demand on other public services such as the NHS and welfare.

In its submission to the Treasury, London Councils said its members’ collective resources for services in 2024-25 remain £2.2 billion lower in real terms than in 2010-11.

With boroughs now serving 884,000 more residents, this means per person core spending power in real terms is 28% lower than it was in 2010-11, the body said.

London Councils is seeking a 7% uplift in core spending power in 2025-26, which is broadly in line with this year’s increase, to help cover the expected funding gap.

It added: “Boroughs are grappling with ever-increasing levels of demand for services after experiencing years of structural underfunding.

“As with so many councils across the country, there is a very real possibility of boroughs needing to issue Section 114 notices – effectively a declaration of bankruptcy.”

Three London boroughs – Croydon, Havering, and Lambeth – are currently reliant on exceptional financial support from the Government.

London Councils said this figure could rise to seven next year.

In 2023-24, 29 of the 33 London boroughs overspent their homelessness budgets by a collective total of £208 million.

Boroughs are forecasting a £250 million overspend in 2024-25 despite an increase in funding.

The temporary accommodation housing benefit subsidy gap, which is the difference between the cost of temporary accommodation and the housing benefit that is available to cover it, is described as an “escalating financial strain” to boroughs.

Councils are limited in how much funding they can claim from the Government for their temporary accommodation costs, while the housing benefit subsidy is still frozen at 2011 levels despite housing being significantly more expensive.

London Councils’ figures from 24 boroughs show a gap of more than £96 million in 2023-24 between the cost of providing temporary accommodation and what councils can recover from the Government through the subsidy.

The body also said it is “extremely concerned” about councils’ housing revenue accounts (HRAs), which are the budgets for managing their social housing stock, including repairs and maintenance, and building new homes.

Reduced resources and increasing costs are putting HRAs under severe pressure, London Councils said, with three London boroughs forecasting they could run out of dedicated reserves in the next four years.

The pressures are said to be so acute that boroughs are budgeting for £170 million of cuts to spending on supervision, management, maintenance and repairs over the next four years to balance their HRA accounts.

A Ministry of Housing, Communities and Local Government spokesperson said: “We are facing the most acute housing crisis in living memory, with record levels of homelessness and too many families living in temporary accommodation in our towns and cities, including in London.

“We are taking action and developing a long-term strategy with councils and local leaders to end homelessness for good.

“We’ll also provide councils with more funding stability, end competitive bidding for pots of money and reform the local audit system.”