A new report by the Local Government Association (LGA) warns that the impact of a slowdown in the economy combined with the credit crunch could lead to two million households, or 5 million people, on the waiting list for social housing in less than two years.

Concerns have been raised by council leaders that the bank’s aggressive lending policies over recent years have overheated the economy and brought misery to borrowers. The LGA is also concerned by the failure of the recent cuts in interest rates by the Bank of England and the £50 billion bail-out extended by the government to cash-strapped banks have not been passed on to consumers.

But the Royal Institution of Chartered Surveyors (RICS) says the situation could be helped if authorities made more use of Empty Dwelling Management Orders.

RICS Policy Officer, James Rowlands said: “With over 663,000 empty homes estimated in England, it is essential the Government bring these properties back into use as quickly as possible to reduce the prospect of the Local Government Association prediction turning into reality.

“Empty properties represent an enormous wasted asset at a time when house prices are high and a slowdown in house building industry reducing the number of homes being built.

“Bringing empty homes back into use will have major effects in areas of both low and high housing demand.

In areas of high demand, the need for an increase in overall housing supply is clear and bringing empty homes back into use will help alleviate this problem. In areas of low demand, there is an acute need for regeneration and development of communities that people actually want to live in.

“Securing the reuse of any empty homes in these areas is economically essential as part of any wider regeneration schemes as empty homes are considered to be an indicator of an area becoming deprived.

“RICS urges local authorities to assess the reasons for empty homes in their area and where necessary make better use of Empty Dwelling Management Orders to bring them back into use.”

The LGA report claims that factors which are set to push up the demand for social housing include:

• An increase from 1 million in 2001 to 1.6 million households - or four million people - last year on social housing waiting lists.
• House prices rising by 156 percent in ten years while wages have risen by just 35 per cent.
• Around 40 percent of new mortgage offers withdrawn and deposits needed to get a mortgage have increased, making it harder for first-time buyers to get on the housing ladder.
• Second lowest mortgage approvals in 13 years, reducing demand for new-build where affordable housing is built.
• A 16 percent increase in repossessions compared to same period last year as people fall into negative equity or are made redundant.
• Housing associations struggle to secure loans to create new affordable housing due to the credit crunch.
• Developers reduce the amount they build and consequently the amount of new affordable homes reduces.
• Local authority and housing association new-build over the last decade is at its lowest since 1947.

A new survey by the LGA of Council Heads of Housing also found that two out of three blamed large increases in house prices for increased demand in social housing.

Nearly half insisted that their current allocations policy cannot cope with the increased demand in social housing. Nearly half also said lack of housing stock was the main challenge facing councils in housing allocation.

To alleviate some of the pressures on the current social stock the LGA is call on government to:

• Allow councils to borrow on the open market in the same way that Housing Associations have freedom to borrow.
• Reform housing finance to enable greater freedom in the way that councils fund their housing through so-called ‘capitalisation’ – whereby local authorities can re-mortgage their assets to invest in house-building.
• Give greater flexibility for local authorities to allocate housing based on local area need.

Chairman of the Local Government Association Environment Board, Paul Bettison, said: “With the banks overstretching their credit facilities it could well mean that in the coming months that councils will have to help pick up the pieces as people end up on social housing waiting lists.

“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.

“With on average every year 90,000 more households joining the ever increasing social housing waiting list over the seven years, experience has taught us that demand will grow even faster.