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Bankruptcy risk for councils due to homelessness crisis

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April 24, 2025
3 min read

Bankruptcy risk for councils due to homelessness crisis

London’s homelessness crisis has escalated to a point where borough councils are warning of potential bankruptcy due to a staggering £330 million overspend on homelessness budgets in the 2024-25 financial year. This overspend represents a 60% increase over initial allocations, driven by an unprecedented demand for temporary accommodation. Currently, approximately 183,000 Londoners, about one in every 50 residents, are in temporary housing, costing councils around £4 million daily.

The financial strain threatening councils with bankruptcy is exacerbated by a growing gap between the costs incurred by councils and the subsidies provided by the government. In 2023-24, this shortfall was £96 million, but it has since ballooned to £140 million, a 45% increase. This mismatch is largely due to rising accommodation costs and a shrinking supply of affordable housing, with 45,000 homes lost from London’s private rented sector in recent years.

Councillor Grace Williams, London Councils’ Executive Member for Housing & Regeneration, emphasised the severity of the situation, stating that the homelessness emergency is the “single biggest risk” to boroughs’ finances. She highlighted that councils have a legal duty to provide temporary accommodation, making it challenging to control expenditures as demand surges.

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In response, London Councils is urging the government to take immediate action in the upcoming Spending Review. Key recommendations include ending the 14-year freeze on housing benefit subsidies, making recent increases to Local Housing Allowance rates permanent, and significantly boosting investment in affordable housing. These measures aim to alleviate the financial burden on councils and address the root causes of homelessness.

The government has acknowledged the crisis, with the Ministry of Housing, Communities and Local Government stating that efforts are underway to tackle the root causes of homelessness, including increasing the supply of affordable housing.

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