Homelessness presents biggest challenge to London boroughs' finances

London Councils has warned that the capital’s worsening homelessness crisis presents the “single biggest risk” to London boroughs’ finances and is pushing councils towards bankruptcy. Homelessness in London has reached its highest level ever recorded, with one in 50 Londoners homeless (183,000).

The number of homeless Londoners has skyrocketed, and increasing temporary accommodation costs mean that boroughs are forced to overspend on their £600 million homelessness budgets by at least £330 million in 2024-25. This is a 60 per cent increase on their original budget plans for the year. 

Local authorities have a legal duty to provide temporary accommodation to homeless households who quality for support under housing law, making it impossible for councils to place limits on their homelessness spending. Every day, London boroughs collectively spend £4 million on temporary accommodation.

London Councils also highlights the stark disparity between temporary accommodation costs and funding they receive from the government, with the gap reaching around £140 million in 2024-25.  This is a 45 per cent increase from 2023-24’s shortfall, which was at £96 million.

Should these conditions continue, London Councils warn that more boroughs will need emergency support and may even be at risk of bankruptcy.

Consequently, London Councils is calling on the government to reform policy in their Spending Review in June by helping councils meet the cost of temporary accommodation by ending the fourteen-year freeze on the amount local authorities can claim back from the government to meet their temporary accommodation costs, as well as make the increase in Local Housing Allowance rates permanent. 

Other recommendations include to progress work on the national cross-departmental strategy to reduce homelessness, and to boost long-term grant funding for affordable housing.

Councillor Grace Williams, London Councils’ executive member for housing and regeneration said: “The worsening homelessness emergency is devastating the lives of too many Londoers 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.”