London’s deepening homelessness crisis has become the “single biggest risk” to borough finances, with soaring costs putting local authorities on the brink of bankruptcy, warns London

Councils, the cross-party group representing the capital’s boroughs.

New analysis shows boroughs were forced to overspend by at least £330 million on homelessness in 2024-25 — a 60% jump over their original budgets. This drastic increase is fueled by the record number of homeless Londoners and rising temporary accommodation costs.

The scale of the crisis:

- 183,000 Londoners are now in temporary accommodation — that’s 1 in every 50 residents.

- Boroughs are spending £4 million per day on temporary housing, including costly nightly rentals and hotels.

- An estimated 45,000 affordable rental homes have vanished from the market in recent years, exacerbating the crisis.

Councils are legally required to provide temporary housing to eligible homeless households, meaning they can't simply cap their spending. Meanwhile, the subsidy from central government isn’t keeping up with rising costs. The gap between what councils spend and what they get back grew from £96 million in 2023-24 to £140 million this year — a 45% increase.

If this trend continues, more boroughs could be forced to issue Section 114 notices, effectively declaring bankruptcy.

Key figures:

- 2024-25 homelessness spending: projected to exceed £900 million

- Overspend: at least £330 million, up over 40% from 2023-24

What London Councils is calling for:

- End the freeze on temporary accommodation subsidies – unchanged for 14 years.

- Make Local Housing Allowance (LHA) increases permanent, and update rates yearly to match inflation.

- Fast-track the government’s national homelessness strategy, with councils playing a central role.

- Boost long-term funding for affordable housing – the root issue behind the homelessness emergency.

Cllr Grace Williams, London Councils’ Executive Member for Housing & Regeneration, said: 

“The worsening homelessness emergency is devastating the lives of too many Londoners and represents the single biggest risk to boroughs’ finances.

“Homelessness spending is fundamentally driven by factors outside our control. Boroughs have a legal duty to provide homelessness support – and we’re seeing homelessness numbers skyrocket while accommodation costs spiral. 

“If things carry on as they are, we will see more boroughs’ become effectively bankrupt. This brings massive uncertainty to the future of our communities’ local services, and could ultimately mean more costs to the government when emergency interventions are required.

“London boroughs are doing everything we can to turn this situation around, but we need urgent action from ministers. Only national government has the powers and resources required to bolster councils’ budgets and reduce homelessness pressures – particularly through investing far more in affordable housing.”

 In recent parliamentary evidence, Cllr Williams presented a dramatic “chart of doom” to MPs, highlighting boroughs’ skyrocketing overspends.

As the government prepares its Spending Review in June, London Councils is urging it to make tackling homelessness a top national priority, backed by sustainable funding and meaningful reform. Photo by Philafrenzy, Wikimedia commons.