There is a “real and present danger” that dozens of town halls across the country could go bankrupt this year due to the spiraling cost of housing families in temporary accommodation, insiders have warned.
The bill for temporary housing has almost doubled in the last five years to more than £2.1bn in 2023/24, with more than 100,000 households currently living in emergency accommodation in England.
Council leaders have told The i Paper dozens of local authorities are now facing unsustainable bills, with 21 councils spending more than £1 in every £10 of their core budget on temporary accommodation, and have called on the Government to plug a growing funding gap.
The Local Government Association (LGA) told The i Paper that councils’ budgets are being “stretched further and further” by a “national crisis” in temporary accommodation costs, as well as soaring social care bills.
Councils receive funding from central government for each temporary accommodation placement of 90 per cent of local housing allowance rates as they were set in 2011, and must make up the rest of the costs from their own funds.
Local authorities warn that the rising cost of temporary accommodation – especially in London and the South East – is creating a widening gulf between the amount they must find for emergency housing and the subsidy they receive back from central government.
The ‘hidden homelessness’ crisis is especially severe in London, where the capital’s 33 councils were forced to overspend their temporary accommodation budgets by at least £345m in 2024-25 – a 60 per cent increase on their original plans.
Grace Williams, a Labour councillor in Waltham Forest, north-east London, and deputy chair of London Councils, said the Labour government had so far failed to get to grips with the crisis.
She said: “Unless we stabilise the situation, a great number of London boroughs will slide into bankruptcy because they’re having to pay these extra temporary accommodation costs.
“This will bring massive uncertainty to the future of our communities’ local services and could ultimately mean more costs to the government when emergency interventions are required.”
Council leaders are calling on Chancellor Rachel Reeves to step in at the upcoming spending review and unfreeze the amount local authorities can claim back from the government for temporary accommodation costs.
Williams added: “(Councils) are doing everything we can to turn this situation around, we need urgent action from ministers.
“This is a massive human tragedy. It means children can’t grow up, play or study safely at home. But it’s also a financial crisis for councils.”
London councils spent £1.4bn on temporary accommodation in 2023/24, and the five local authorities with the biggest bills were all in the capital.
About one in 50 Londoners – and one in 20 children in the capital – are currently homeless and housed in temporary accommodation, compared with one in every 160 people across England.
Havering Council, in east London, had to secure a £54m government loan in order to avoid effective bankruptcy last year and overspent its temporary accommodation budget by £6.1m.
Council leader Ray Morgon, said: “We knew (when he was elected leader in 2022) that the finances weren’t in a great place, but the situation has got considerably worse – for us and other councils – because of the demand for adult and child social care but also the rising got of supporting people that are becoming homeless.”
Havering is one of 19 councils to have been provided with Exceptional Financial Support framework funding in order to balance its books in 2024/25. Seven of the authorities are in London and others including Birmingham City Council, Nottingham City Council and Thurrock Council.
Cllr Morgon said rising homelessness and spiralling emergency temporary accommodation costs are “increasingly a big weight on many [council] leaders’ shoulders”.
“I suspect there will be many more councils needing EFS this year because the costs are only going up,” he added.
Government data shows the leading cause of homelessness is private renters either being evicted or coming to the end of their rental contract and not being able to afford a new property in the area.
As well as privately rented homes, temporary accommodation includes emergency housing such as hotels, B&Bs, converted office blocks, shipping containers and hostels.
Travelodge are among the private firms being paid millions by councils for emergency accommodation (Source: Getty Images Europe)An investigation by The i Paper earlier this year revealed councils are often forced to pay millions to private companies to secure emergency accommodation, due to a lack of social housing.
The largest temporary accommodation provider was a private firm called Notting Hill Genesis, which received at least £84.8m between 2019/20 and 2023/24, while budget hotel chain Travelodge was also in the top 10, receiving at least £26.1m during the same period.
Hastings Borough Council spent more than half of its core budget on temporary accommodation last year, with one council insider telling The i Paper that people being made homeless via Section 21 “no-fault” evictions, so landlords could sell their homes or rent them out on Airbnb, was a major factor in the crisis.
Crawley Borough Council, which spends about 40 per cent of its core budget on temporary accommodation, said last year that housing pressures posed “a critical risk to the council’s financial resilience”.
Analysis: Why we should all care about the parlous state of local council finances
Rising temporary accommodation bills for homeless households are probably not what keeps most people up at night. However, the knock-on effect these costs are having on local council finances will eventually be felt by everyone in the affected areas if nothing changes.
Consider the recent bin strikes in Birmingham. These show the potential fallout of the cuts that follow a local authority effectively declaring bankruptcy.
Other councils, including Nottingham and Croydon, have also declared effective bankruptcy.
If unregulated private companies continue to charge through the nose for emergency temporary accommodation while the number of homeless households keeps rising, more will follow because they will be forced to overspend on homelessness support.
This will not only inhibit local councils’ ability to deliver new affordable and social housing to help Labour meet their ambitious target of 1.5 million new homes in years to come – it will also start to chip away at the services they are able to offer right now.
Britain’s housing crisis is often presented as a Gordian knot that is impossible to undo. The truth is that it’s a remarkably simple set of problems to solve.
Homelessness is rising because private rents are expensive, but state support available to low-income households who struggle to pay them has been frozen.
This means people often become homeless because they cannot afford their rent. But because many councils have a shortage of available social housing, there is nowhere to house people long term when this happens.
Central government bailouts are only a temporary solution, and worsens councils’ financial outlook long-term because debts must be repaid.
Far more sensible would be for the government to invest in building social housing. This would alleviate the economic and human cost of these chronic problems.
More than that, it would indemnify local councils against future homelessness crises by ensuring their revenue increases because the rent would go back into the system.
By Vicky Spratt
Cllr Adam Hug, Housing spokesperson for the LGA, said: “We are facing a national crisis on temporary accommodation, with local authorities up and down the country having to stretch budgets further and further, as more and more people turn to their council for help.
“Temporary accommodation costs, alongside pressures in adult social care, children’s social care, services for children with special educational needs and disabilities and home-to-school transport, are placing increasing pressure on council budgets.”
A Ministry for Housing, Communities and Local Government spokesperson said:
“We are providing £1bn for crucial homelessness services so councils can support families faster and tackling its root causes by building 1.5 million new homes, boosting social and affordable housing and abolishing section 21 no fault evictions.”
England has highest rates of people in temporary accommodation
England has the highest rate of people living in temporary accommodation in the developed world.
The number of English households living in temporary accommodation has more than doubled between 2010 and 2023 from 48,000 to a record 112,000, meaning around one in 200 households have no fixed residence.
The latest OECD data shows 50.5 per 10,000 people in England live in temporary accommodation, much higher than Belgium in second place at 24.5.
In the EU, France (30.2) has the highest rate of homelessness per 10,000 people in temporary accommodation. This is followed by Czechia (25.9) and Germany (21.3).
Scotland and Wales both have slightly better figures than England, with one in every 220 households in temporary accommodation.
The US, with whom the UK’s welfare state is often compared, stands in sixth place, albeit with a considerably higher proportion of people sleeping on the streets.
Out of all countries in Europe, Finland is the only one where homelessness is decreasing.
By Anjolaoluwa Fashawe
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