London’s worsening homelessness emergency represents the “single biggest risk” to boroughs’ finances and is pushing town halls towards bankruptcy, London Councils has warned.
Analysis from the cross-party group estimates that skyrocketing numbers of homeless Londoners needing a roof over their heads and spiralling temporary accommodation costs mean boroughs in the capital were forced to overspend on their homelessness budgets by at least £330m in 2024-25. This represents a 60% increase on their original homelessness budget plans for the year.
Local authorities have a legal duty to provide temporary accommodation to homeless households qualifying for support under housing law, making it essentially impossible for councils to place strict limits on their homelessness expenditure.
London boroughs also highlight a growing mismatch between their temporary accommodation costs and the subsidy they receive for this from the government. In 2023-24 the gap was around £96m, but London Councils estimates the gap for 2024-25 reached £140m – a 45% increase.
London Councils fears that if current trends continue, more boroughs will need emergency support from the government and may even be at risk of issuing Section 114 notices – effectively declarations of bankruptcy [1].
London Councils highlights the following:
-
London boroughs originally allocated almost £600m to their homelessness budgets for 2024-25. This was based on previous years’ spending and anticipated increases in homelessness pressures.
-
However, pressures shot up even faster than expected. The number of homeless Londoners requiring temporary accommodation has reached the highest level ever recorded – 183,000, or one in 50 residents of the capital.
-
London boroughs collectively spend £4m daily on temporary accommodation. Costs have spiked due to landlords ending their arrangements with boroughs (whether to sell their property or seek tenants paying higher rents on the open market) and a resulting increase in the use of more expensive nightly paid accommodation, including hotels. Over recent years, 45,000 homes have been lost from London’s private rented sector, mainly at the cheaper end of the housing market.
-
London Councils’ analysis shows that boroughs are expected to spend over £900m in total on homelessness in 2024-25 – an overspend of at least £330m (or 60%) and an increase of over 40% compared to 2023-24.
-
One of the drivers of the overspend is the ‘temporary accommodation housing benefit subsidy gap’. With the subsidy gap expanding to £140m in the capital, this is a major financial strain for London boroughs [2].
London Councils emphasises the need for urgent national policy action in the Spending Review to reduce homelessness pressures, including through more financial support for hard-pressed boroughs and additional investment in affordable housing.
The government is set to conclude its Spending Review in June, which will determine levels of investment in public services for the coming years. The government is also preparing a new national strategy on homelessness.
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.”
Cllr Williams recently gave evidence in parliament on boroughs’ unsustainable homelessness spending, including showing MPs a “chart of doom” based on boroughs’ fast-rising overspends [3].
London Councils is calling on the government to:
Help councils meet the cost of temporary accommodation by ending the fourteen-year freeze on the amount local authorities can claim back from government to meet their temporary accommodation costs. The subsidy gap has become the key driver of financial insecurity for boroughs, reducing investment in prevention and is consequently leading to lower quality accommodation.
Make the increase in Local Housing Allowance rates a permanent measure. Research published by London Councils shows only 5% of London’s private rental listings in the capital are affordable to households in the private rented sector relying on Local Housing Allowance (which goes to eligible households as part of their housing benefit or Universal Credit payment if they have a private landlord).
Boroughs want LHA rates updated annually to track inflation and help ensure adequate support for low-income tenants in the private rented sector. This would prevent significant levels of homelessness in the capital.
Progress work on the national cross-departmental strategy to reduce homelessness. In line with the government’s commitment to a new strategy with a clear role for councils, tackling homelessness must be a major priority at a national level with government departments working together – in addition to key partners such as local authorities – as effectively as possible.
Boost long-term grant funding for affordable housing. The chronic and longstanding shortage of affordable housing is the key factor driving London’s homelessness emergency. At the Spending Review, the government should announce a more ambitious and longer-term Affordable Homes Programme on top of the initial investment confirmed for 2026-27. With more investment available for social and affordable housing, boroughs will be in a better position to deliver the affordable housing London’s communities are crying out for.
ENDS
[1] Just under a quarter of London local authorities (seven out of 33) now need Exceptional Financial Support from the government. London accounts for almost a third (£418m) of the national total of £1.3bn in EFS funding.
However, London Councils argues these emergency borrowing measures burden boroughs with further debts and will not be enough to return them to a stable financial footing.
London Councils’ analysis shows boroughs face a funding shortfall of at least £500m this year (2025-26).
The umbrella body is urging the government to use the Spending Review to deliver much-needed investment in local services after a prolonged period of underfunding and instability. Boroughs in the capital receive around 28% less funding per Londoner compared to 2010.
Among London Councils’ key asks is a call for overall council funding to be restored to 2010 levels by 2028-29, requiring real-terms increases of 4% every year.
The cross-party group’s priorities also include protection of funding for demand-led services to meet forecast levels of growth, access to a broader range of funding sources, and investment in the early intervention and prevention services that bring the most benefits over the long term.
[2] Councils are limited in how much housing benefit subsidy they can claim back from the government for temporary accommodation costs, leaving a gap they must fund from their own budgets. Currently this subsidy is frozen at 2011 levels – even though accommodation has become significantly more expensive over the past 14 years.
London Councils’ data from boroughs showed a gap of more than £96m in 2023-24 between cost of Housing Benefit for households in temporary accommodation and what boroughs received back from government through the housing benefit subsidy.
Based on estimates for 2024-25, London Councils believes the boroughs’ subsidy gap for 2024-25 went up to £140m.
[3] On 11 March 2025 Cllr Williams appeared as a witness on behalf of London Councils at the Housing, Communities and Local Government committee’s hearing on the funding and sustainability of local government.