A new report has revealed a staggering £740 million funding shortfall for temporary accommodation across London – the equivalent of £202 per household.
It means that around 11% of the average household’s council tax bill – or one in every nine pounds – is now being spent just to keep homeless families off the streets.
According to analysis commissioned by London Councils, the London Housing Directors’ Group, and the Society of London Treasurers, boroughs across the capital are spending an eye-watering £5.5 million every single day on homelessness support. That’s up from £4.2 million a day last year.
But here’s the catch: the government funding meant to help cover these costs has been frozen for 14 years.
The cost of a broken system
Research from the London School of Economics (LSE) found that eight London boroughs spent a combined £543 million on temporary accommodation in 2024/25. Yet, because the government’s housing benefit subsidy hasn’t been updated since 2011, only a fraction of that money is reimbursed.
That left councils to fill a £223 million gap from their already overstretched budgets. Scaled up across all boroughs, the shortfall tops £740 million citywide.
And the problem keeps growing. Councils have a legal duty to provide homes for families who qualify under housing laws – meaning they can’t simply cap spending, even as costs spiral.
At the same time, rents in London’s private sector continue to rise, making temporary accommodation harder and more expensive to secure.
A crisis with human consequences
The knock-on effects are stark. As more money is swallowed up by temporary accommodation costs, councils are being forced to cut funding for libraries, leisure centres, children’s services, and other vital community facilities.
Seven London boroughs are already reliant on Exceptional Financial Support from the government – the highest number of any region – and London Councils warns that more could face bankruptcy without urgent reform.
Cllr Grace Williams, London Councils’ Executive Member for Housing and Regeneration, said:
“Boroughs are doing everything they can to support homeless families, but the system is buckling under the strain. The housing benefit system has failed to keep pace with reality – and councils are paying the price. We urgently need government to step in with emergency funding and long-term reform to prevent more families falling into homelessness and more councils facing financial collapse.”
Kath Scanlon, Distinguished Policy Fellow at the London School of Economics, said:
“The current system for funding temporary accommodation has developed in a piecemeal way over many years, with key decisions gradually shifting the financial burden from central government to local authorities.
“Nowhere has this been more damaging than in London. Our research shows that the cost of temporary accommodation has become a significant and unsustainable pressure on borough budgets, forcing councils to divert resources away from other essential services.”
The human toll
Two-thirds of Londoners in temporary accommodation are families with children, often placed in overcrowded, poor-quality homes far from their schools and support networks.
Today, one in every 21 children in London is growing up in temporary accommodation – roughly one child in every classroom.
This crisis doesn’t just hurt council budgets – it’s reshaping childhoods and communities.
What needs to change
London Councils is calling for immediate action to ease the pressure:
- Unfreeze Housing Benefit support for temporary accommodation.
The subsidy has been frozen since 2011 despite rising rents. Updating it to current Local Housing Allowance (LHA) rates would help bridge the funding gap.
- Raise LHA rates more broadly.
LHA no longer reflects real private rent levels, leaving too many low-income Londoners unable to find affordable homes and pushing more families into homelessness.
- Invest in council-owned housing.
Instead of paying ever-higher sums to private landlords, the government should fund councils to build or buy homes. This would create better-quality accommodation and reduce long-term costs.
Without immediate support, London’s temporary accommodation system could soon collapse under its own weight – taking local services, family stability, and community wellbeing down with it.