Town halls fear two million families will need social housing

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Councils are struggling to cope with the flood of people turning to them for housing because of soaring mortgage costs, high property prices - particularly in London and the South-East - and more repossessions.

Experts have already predicted that young middle-class people face having to live in council houses because they will be unable to buy or rent a private property.

Housebuilders have also slammed the brakes on starting new homes, particularly social housing, as the economy slows with the credit crunch biting.

The Local Government Association issued the warning that the number of families on the social housing waiting list, which was one million in 2001 and

1.6 million last year, could hit two million by 2010.

Almost half of councils say they cannot cope with increasing demand for housing. Paul Bettison, chairman of the LGA's environment board, said social housing had to be "a top priority" because fewer people were getting on the property ladder. "With the banks overstretching their credit facilities it could well mean that in the coming months councils will have to help pick up the pieces as people end up on social housing waiting lists," he said.

"Even when the economic good times were rolling, councils saw ever increased pressure on their social housing stock.

"Now that the credit crunch is upon the country it appears that many thousands more people will be looking to councils to provide them with a permanent home as they either find it impossible to get on the housing ladder or see their home repossessed."

The LGA called for councils to be able to be given greater freedoms to increase their housing stock by being able to borrow freely and remortgage assets to reinvest. Housing minister Caroline Flint warned the Cabinet this week that housebuilding was "stalling" and that prices could fall be up to 10 per cent "at best" this year.